Substandard Housing

[smj]

Originally Posted by Island Time O25

By your logic if everyone around me is selling for $500K and I am waiting for that $1mil offer I should be taxed at $1mil while I wait?

You keep missing my point, whether intentionally or otherwise. I am not arguing that everything does not have its price and ultimately FMV. I am arguing that until that happens, and only then and not before, there can be and there should be no theoretical FMV upon which to base taxation of one's property.

Sure it would be inconvenient, especially politically, to have neighbors pay vastly different amounts of taxes. But it is only right that people are not gouged just because their neighbors paid 10X today compared to X which someone paid 20 years ago..

If taxes weren’t figured on FMV the housing market would be dead. Why sell a house you’ve lived in for 20 years then buy a comparable house and pay 10 times the amount in taxes? Makes no sense.

[wingssail]

Originally Posted by Island Time O25

By your logic if everyone around me is selling for $500K and I am waiting for that $1mil offer I should be taxed at $1mil while I wait?

You keep missing my point, whether intentionally or otherwise. I am not arguing that everything does not have its price and ultimately FMV. I am arguing that until that happens, and only then and not before, there can be and there should be no theoretical FMV upon which to base taxation of one's property.

Sure it would be inconvenient, especially politically, to have neighbors pay vastly different amounts of taxes. But it is only right that people are not gouged just because their neighbors paid 10X today compared to X which someone paid 20 years ago.

I recall reading about such system existing in France and how it is meant to keep the elderly in their ancestral homes. Seem logical to me - that taxation should be based on actual prices paid and not on some theoretical numbers which do not apply to a particular property.

US system is meant to keep the property ownership turn over high, which in turn allows the tax offices to collect more property tax from more people. But at a cost of big disruption for long time residents who are forced to sell. I often hear a complaint from the elderly in my area that they pay more in annual real estate tax today than they paid for the house 40 years ago. That is just so wrong on all levels.

Your logic is wrong. Property tax is based on the value of what you own. It is not a sales tax or an income tax (or an estate tax or whatever). So if what you own has increased in value since you bought it 20 years ago you have to be taxed on its new value. You may dispute this concept of taxing you on the value of what you own. Fair enough, but until it is changed you owe that tax and they have to estimate what the value is, NOW, not 20 years ago.

So FMV is a good way of estimating.

There are lots of other ways of taxing, but right now, this is what we have. It's tough on the elderly, I agree, so change it. (In their case they have gotten rich (on paper) on the increasing value of their homes).

The tax is fair.

[loneshark64]

Florida is substandard housing.

[Island Time O25]

Originally Posted by Lake-Effect

What you're discussing is probably too 'socialist' for the US, which has a much-stated preference for market-based solutions, like FMV. And I think you haven't thought through all the shenanigans that would ensue to artificially maintain low tax rates.

These are not shenenigans IMO but quite natural propensity/desire of all people to minimize expenses where they legally can. And if the letter of the law allows why should the people not take advantage of such law?

And again, I don't see "a market solution" in slapping a FMV on a property that does not fit a market definition of FMV i.e. a willing seller, etc, etc. In fact I see the current taxation scheme as socialistic in its imputation of value to a non-existing transaction and the system I advocate as real market solution i.e. to wait until the market speaks (willing seller sells and willing buyer buys).

[Island Time O25]

Originally Posted by smj

If taxes weren’t figured on FMV the housing market would be dead. Why sell a house you’ve lived in for 20 years then buy a comparable house and pay 10 times the amount in taxes? Makes no sense.

Bingo. And I would rather live with the dead market rather then pay tax on something that is rammed on me by the neighbor paying 10X for his property.

[valhalla360]

Originally Posted by Island Time O25

By your logic if everyone around me is selling for $500K and I am waiting for that $1mil offer I should be taxed at $1mil while I wait?

Nope, that doesn't meet the definition of FMV as it also takes a willing buyer.

Put it this way...if you take the purchase price and then every year adjust based on what the housing market rate of inflation is in the nearby area...that is pretty much what they do and correlates pretty well to FMV unless you have a very unusual house.

The alternative is:
- An old couple has been living in a house for 50yr who bought it for $20k.
vs
- An old couple in a similar age/financial position just bought a nearly identical house for $200k right next door.

Can you really argue the couple that just bought should pay 10 times the property tax per year just because they bought recently?

You can argue property tax is bad in and of itself but once you have a property tax implemented, it has to be applied in a fair manner and FMV is a reasonable method. It's not perfect but until you come up with a better solution, it's pretty reasonable.

[valhalla360]

Originally Posted by Island Time O25

Bingo. And I would rather live with the dead market rather then pay tax on something that is rammed on me by the neighbor paying 10X for his property.

That's been tried. The govt will still take it's pound of flesh but now, you have no resale value.

In Michigan for example, the highest property tax is the City of Detroit. They kept raising it as property values sunk because they still needed to fund the schools. It's higher than any other city in the state by a huge margin but it's also the worst in terms of resale value and home condition. Basically, those who could afford to sold at a loss and escaped. That's basically what your system would set up.

[Island Time O25]

Originally Posted by valhalla360

Nope, that doesn't meet the definition of FMV as it also takes a willing buyer.

Put it this way...if you take the purchase price and then every year adjust based on what the housing market rate of inflation is in the nearby area...that is pretty much what they do and correlates pretty well to FMV unless you have a very unusual house.

The alternative is:
- An old couple has been living in a house for 50yr who bought it for $20k.
vs
- An old couple in a similar age/financial position just bought a nearly identical house for $200k right next door.

Can you really argue the couple that just bought should pay 10 times the property tax per year just because they bought recently?

You can argue property tax is bad in and of itself but once you have a property tax implemented, it has to be applied in a fair manner and FMV is a reasonable method. It's not perfect but until you come up with a better solution, it's pretty reasonable.

In your example I believe it is VERY fair that someone who paid $200K today should be paying 10X in taxes over someone who bought for $20K 50 years ago. And the community has benefitted from the stability that the 50 year residents provided.

Basically if you think about it each system advances different goals. The current system throws older, less wealthy owners under the bus while encouraging new owners to overpay and create a higher turnover rate.

My system would encourage stability of the neighborhood, act as a brake on runaway prices and would allow for younger family members to stay in family housing they can actually afford instead of starting their lives with unaffordable housing options.

[Uncle Bob]

Originally Posted by loneshark64

Florida is substandard housing.

[Island Time O25]

Originally Posted by valhalla360

That's been tried. The govt will still take it's pound of flesh but now, you have no resale value.

In Michigan for example, the highest property tax is the City of Detroit. They kept raising it as property values sunk because they still needed to fund the schools. It's higher than any other city in the state by a huge margin but it's also the worst in terms of resale value and home condition. Basically, those who could afford to sold at a loss and escaped. That's basically what your system would set up.

That's because the gov't always feels entitled to our money.

The schools should not be funded by little old ladies who haven't had a child in a school system for over 50 years. But by families with children or those of childbearing age i.e. new or recent buyers.

Detroit's problems did not start with depressed housing prices but the depressed prices were a direct result of its decades old politics. You have your cause and effect upside down.

[valhalla360]

Originally Posted by Island Time O25

In your example I believe it is VERY fair that someone who paid $200K today should be paying 10X in taxes over someone who bought for $20K 50 years ago. And the community has benefitted from the stability that the 50 year residents provided.

Define the value in someone not moving for 50yr?

New people usually spend quite a bit in the community getting set up and renovating adding to the local economy. What you suggest would lead to stagnation and would trap people in an area as once you have 15-20yrs in a location, it would be a huge cost hit to move to a new location.

[valhalla360]

Originally Posted by Island Time O25

The schools should not be funded by little old ladies who haven't had a child in a school system for over 50 years. But by families with children or those of childbearing age i.e. new or recent buyers.

Detroit's problems did not start with depressed housing prices but the depressed prices were a direct result of its decades old politics. You have your cause and effect upside down.

I agree that those who have kids should be the primary payers of property taxes but that's a different discussion.

It's wildly flawed to assume someone moving into an area has school age kids. Also, that little old lady in your example, likely benefited when her kids used the school system, so she is only replenishing what her family used.

My point with Detroit is if you undermine the values used to assess property taxes, it simply results in higher property taxes to compensate for the lower assessments. When it became undesirable to live there, that drove property values down (your plan would drive down property values)...in turn, they responded by raising taxes which drove prices down further. Now they are in a catch 22 as a home priced relative to what you see in the suburbs has a massive property tax bill...net result, they struggle to get people to move to the city and buy houses.

[GordMay]

Island Time is misinterpreting the requirement for a willing buyer and a willing seller, in determining FMV. The “willingness” merely refers to the assumption that neither party to the theoretical transaction is “under duress”.
The governing tax code definition of fair market value comes from the Internal Revenue Service Publication 561. FMV is an estimate of the market value of a property based on what an educated, willing, and unpressured buyer and seller, each behaving in their own best interest, could agree on.
“... Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. If you put a restriction on the use of property you donate, the FMV must reflect that restriction ...”
IRS Publication 561 ➥ https://www.irs.gov/pub/irs-pdf/p561.pdf

[Lake-Effect]

Originally Posted by Island Time O25

These are not shenenigans IMO but quite natural propensity/desire of all people to minimize expenses where they legally can. And if the letter of the law allows why should the people not take advantage of such law?

Well, that's actually a good argument for the FMV system - to block shenanigans, that only a few, with the funds and accountants, could benefit from.

Originally Posted by Island Time O25

Bingo. And I would rather live with the dead market rather then pay tax on something that is rammed on me by the neighbor paying 10X for his property.

We're getting warmer...

Originally Posted by Island Time O25

That's because the gov't always feels entitled to our money.

Our turn to shout Bingo. You just don't wanna pay taxes. That's fine... but it also suggests that in your no-FMV scenario, if you were the one buying a nice property, and you found out that the elderly couple beside you were paying 1/10 what you've just been assessed for property tax, you would now be yeilng "Unfair!".

The schools should not be funded by little old ladies who haven't had a child in a school system for over 50 years. But by families with children or those of childbearing age i.e. new or recent buyers.

The whole country benefits from having an educated population and workforce. Public education is not just an obligation of, or of benefit to those with kids.

[GordMay]

Local revenue comes from property taxes, charges and fees, and transfers from federal and state/provincial governments. In the USA, municipalities sometimes impose sales, and other taxes.
Municipal property taxes pay for services like:
public education
infrastructure (water, sewers, and roads, etc)
firefighting
local police
parks & libraries, etc.
From where do you think local governments should get their revenue, if not property taxes?