Real estate principles_powerpoint_for_chapter_15

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Chapter 15: Taxes and Assessments

appraisal & assessmentad valorem taxes = according

to valuesource of income for local

government tax district appraises all

taxable propertytax rate calculation

PROPERTY TAXES

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Expressing Property Tax Rates

Mill Rate Dollars perHundred Thousand

Schooldistrict

40 mills $4.00 $40.00

City 30 3.00 30.00

County 10 1.00 10.00

Total 80 mills $8.00 $80.00

Dollars per

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• 85 mills = .085• 215 mills = 2.15• 5 mills = .005

Move decimal: • Tax appraised value• Assessed value• Millage rate

(e.g., 80 mills; see previous slide)

Result: Tax Bill

Calculations using Mills

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Unpaid property taxes

Assessment appealProperty tax

exemptionProperty tax

variationsSpecial assessments

OTHER TAXING MATTERS

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Basis is the price originally paid for the home plus any fees paid for closing and

improvements.

FEDERAL INCOME TAX

© 2010 by South-Western, Cengage Learning

To calculate the gain you must take the sale price and subtract the selling expenses; then subtract the basis to determine the gain.

CAPITAL GAINS

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Purchase price $90,000; closing costs are $500 Basis $ 90,500Add landscaping and fencing for $3,500 Basis $ 94,000Add bedroom and bathroom for $15,000 Basis $109,000

Sell home for $125,000; sales commissions Amount realized $117,000 and closing costs are $8,000

Amount realized $117,000Less basis -$109,000

Equals gain $ 8,000

Calculation of Gain

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Sale of principal residenceUsed for 2 of the last 5 yearsMarried – exclude up to $500,000

gainSingle – exclude up to $250,000

gain

INCOME TAX EXCLUSION

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15% to 20% If property held longer than 1 year

CAPITAL GAINS TAX RATE

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Selling price of old homeLess selling expensesLess fix-up costsEquals adjusted sales price

$250,000

-18,000

-7,000

$225,000

Adjusted Sales Price

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INSTALLMENT METHOD

Sale of real estate in which the proceeds of the sale are deferred beyond the year of sale

Tax Deductions

• State & local real estate taxes• Interest with limits• Other deductions

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Impact on Real EstateAgent’s Liability for Tax Advice

Conveyance Taxes

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TAX RULES FOR REAL ESTATE ARE CONTINUALLY CHANGING

Ad valorem taxes Adjusted basis Assessed value Assessment appeal

board Basis

Documentary tax Installment method Mill rate Tax certificate Tax lien

Key Terms

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