According to the August LANDTHINK Pulse results, 77% of respondents DO NOT support raising property taxes on out-of-state landowners. The rise of property taxes has become a topic of discussion across many local communities in the U.S. Rising land prices and higher interest rates aren’t the only challenges to buying property these days. Between 2022 and 2023, property taxes shot up as much as 31% in some parts of the country and Americans are growing increasingly frustrated.
Last month, the August Pulse asked: Should out-of-state landowners pay a higher property tax rate?
According to a nationwide poll by the Harris School of Public Policy and AP-NORC Center, around two thirds of Americans surveyed believe their property tax rate is too high. The poll was conducted in 2023, between December 14 to 18, with 1,024 participants across all 50 states and the District of Columbia. As one of the most significant sources of revenue for municipalities, the unpopularity of property taxes has implications for how cities are run.
What are property taxes? Property tax is a levy on certain types of physical property, such as homes, real estate and land. Local governments typically assess property tax, and the property owner pays the tax. The amount of tax due depends on the property’s location and how much it’s worth. State and local governments rely on property taxes to fund public services and infrastructure. This might include the police department, public schools, local parks and libraries, bridge and roadway maintenance and much more. Typically, the relevant taxes are broken out on your tax bill.
Property taxes are calculated based on the value of the property. This includes both the land and the buildings on it. The single tax rate for a property combines all local rates applied from the county, city, and school district. Assessors (sometimes called appraisers) who work for the local taxing authority track the value of every piece of land and real estate in a taxing district, such as a city or county. They maintain databases of local property values, often using sophisticated mapping software.
Property tax is typically determined by multiplying the value of the property by a tax rate: Property tax = value of the property x tax rate. This aggregate rate is referred to as the mill levy. The mill levy is the total tax rate levied on your property value. One mill represents one-tenth of one cent. One mill equals $1 for each $1,000 of assessed property value.
Property taxes can be a financial burden for some, but deductions, credits and exemptions can potentially lower the amount you owe. Some common property-tax exemptions include:
Homestead exemption: If you qualify, a homestead exemption will allow you to reduce the taxable value of your primary residence by a predetermined amount. The rules for this exemption vary by state.
“Circuit breaker” programs: Property tax circuit breaker programs reduce property tax liabilities for seniors, disabled people, low-income residents and others who qualify. These programs also vary widely among the states that offer them.
Tax deferrals: Seniors, disabled homeowners and others may qualify to defer property tax payments until the sale of the property or the death of the owner.
Last year’s poll found that few U.S. adults have a high level of confidence that the institutions that ultimately use their tax dollars — whether the federal government or local school districts — spend those taxes in the best interest of “people like them.”
Should out-of-state landowners pay a higher tax rate than residents? Out-of-state property owners drive up real estate prices, which make affordable housing out of reach for many residents. In some states, primary residents are taxed at higher rates than those who own second homes or commercial land.
Consider out-of-state property owners that reside in Florida and Texas, states with no income tax. Out-of-state homeowners, who may spend just a little less than six months in the state, with their home staying empty for the balance of the year, pay no income tax and pay no income tax in their resident state of Texas or Florida. These out-of-state owners often avoid high estate (death) taxes and Florida and Texas have no estate tax. When you put all this together, you can see how non-resident homeowners can shortchange the state. They avoid income and estate taxes that can amount to millions of dollars over their lifetime and at their death. This in turn forces the states to impose higher taxes on its full-time residents.
Property taxes are the financial backbone of local governments and apply to all land investments, regardless of whether you’re living on the land, building on it, or earning income off of it. That means that if you own raw or vacant land, you must pay property taxes on it although you may also be eligible for some decent deductions. The amount of property taxes that you owe on vacant land are calculated by your county tax assessor and are usually based on the “best and highest use” potential of the land.
Landowners may find themselves facing higher property taxes than they anticipated, so checking out the property tax history of a plot of land prior to purchasing it is a smart move. That way you can get a heads up on what you’re in for. If you buy land and think the assessed value is too high or if you think it’s gone up too much in the past year, then you can appeal your property tax assessment.
Land investors are eligible to write off certain expenses related to owning your vacant or unproductive land. You first need to determine whether you will or will not get a tax deduction for the interest, property taxes, and other carrying costs.
If you’re planning on buying property either in state or out-of-state, and want to do it right, contact an experienced real estate Certified Public Accountant. He or she will advise you on how to best approach the sale and help protect against tax complications.
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The out of state landowner has to pay school taxes on the real estate but has no children in school. Perhaps the tax rate should be reduced for out of state landowners. In some states (NY for example) the gain is estimated at the closing of a sale and is in fact taxed.
Actually most in state landowners have no children in school either. Out of state land buyers RARELY have any scintilla of a clue what the actually local market driven land prices are, almost NEVER conduct a local land real estate market comparison review for similar recent land sale and pay enormously & unconscionably high prices for land that they buy thus driving up the land real estate market for EVERYONE, not to mention tremendously higher property tax assessments for everyone else. They are also in MANY cases the prime driver of land parcelization that is destroying our rural communities. Not only should out of state land buyers pay higher property taxes, they should also pay and impact fee of at least 25% of the sales value if they buy the land more than a few percent above the like property sales value taking into account inflation for that area. I loath taxation, especially property taxation. Taxation is theft. Out of state land buyers who are ruining and destroying rural areas are and even more destructive scourge.