This long-standing form of taxation has its roots in ancient
times. We take a look at the history of the property tax and
go over the basics.
Property taxes, in various forms, have been around since the dawn of civilization. There is evidence of
their use in ancient Egypt, Persia and China. Primordial taxation focused on land, as its agricultural value
played a major role, in its time. To this day, property taxes are a main source of revenue for local states
and governments throughout the world.
We can trace our modern property tax system back to England in the Middle Ages. England's kings lived
in infamy as heavy-handed tax collectors. British landowners were obvious targets of tax collection, as
they had the greatest ability to pay. Property tax in early America was the only major revenue source that
supported state and local government programs. But, even back then property taxes were met with much
opposition. The theme continues today, as the taxation of property has never been a popular one.
Property taxation is simply a levy assessed on property such as real estate. Real estate property taxes
are typically assessed by county, state and local governments, rather than federal governments. Local
authorities such as school districts, water and sewer services also play a role.
State and local governments rely heavily on the tax revenue derived from property taxes. In fact, property
taxes are often the largest source of their income. In some states, property taxes produce more revenue
than sales and income taxes combined. The national government plays little role in the collection of
property taxes. Local and state governments collect property taxes on:
- Land and structures
- Improvements to land (property additions)
- Personal man made objects (movable objects)
Whether the property is residential, commercial, or industrial, and also
considering the property's assessed value, are all contributing factors when
determining property tax rates. Property taxes have been widely criticized due
to the differences paid in various states. Based on property value, Alabama
comes in at the lowest property tax rate state at 1.3 percent, while New
Hampshire has the highest at 4.9 percent. But, before you pick up and move to
Alabama or leave New Hampshire, it's important to understand that there are
variables involved. New Hampshire, for example, is able to exact more
revenue from property taxes than other states, since they don't levy general
income, sales, or use taxes.
Real estate taxes are deductible on federal income tax returns. The more you
pay in property taxes, the more you can write-off. In fact, there is no limit on the
property tax deduction. If you're a new homeowner you can also deduct
property taxes paid by the seller, that may have applied to your property tax
debt. As the new homeowner, you can make this deduction, regardless of
whether you reimbursed the seller or not.
Many of the unfortunate individuals caught by the alternative minimum tax
(AMT) aren't so lucky, however. The AMT, with its noble roots, was originally
created to make sure that the nation's wealthy paid at least something in
income tax. Thanks to inflation and an inflexible tax code, those previously
defined as "wealthy" are now the middle class. As a result, millions of middle
income American's fall victim to the AMT each year. To make matters worse,
property taxes are non deductible under the AMT. The good news is that
recent AMT tax bill legislation should provide middle class homeowners with
much needed relief.
One of the most famous property tax bills, California's Proposition 13, has had more impact on property
taxes, than any other levy in history. After much publicity, California voters overwhelmingly approved Prop
13 in 1978, making California property taxes affordable. Often referred to as the Tax Revolt, prop 13 had
a major influence on other states voters, which led to many other states enacting their own property tax
relief. The most significant factors as they relate to Proposition 13:
- Limited property taxes to 1 percent of assessed value with March 1, 1975 as the base.
- Limited assessment value increases to 2 percent per year or the rate of inflation, whichever is less
- Property must be sold to reassess market value.
- Prohibited state lawmakers from increasing new taxes without a two-thirds vote of the legislature.
- Prohibited local governments from adding new taxes without a two-thirds vote of the electorate.
Depending on your specific state and municipality, your property tax due date and procedures will vary.
Paying a large annual or biannual property tax payment is not always easily manageable, even for the
well-heeled. One way to ease the tax burden is to make your property tax payments along with your
monthly mortgage payments. By doing so, your funds are kept in a mortgage escrow account until the
property taxes are due. Escrow accounts are a convenient way to pay your property tax, homeowners
insurance, and other bills. To be assured that your property taxes are paid on time, many lenders will
require escrow mortgage accounts.
Since their introduction in ancient times property taxes have never been welcomed with open arms. To
this day they still may not be celebrated, but they play a valuable role in our modern infrastructure. They
fund the municipal budgets in which our federal government has little or no involvement. These funds
support local infrastructures like our school systems, parks, libraries, hospitals, fire stations, and more.
These are all critical areas of need, but equally deserving is property tax accountability on behalf of the
Copyright © 2010 The Money Alert.com. All rights reserved.
All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to
participate in any particular trading strategy. The Money Alert does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any
information prepared by any unaffiliated third party, whether linked to this web site or incorporated herein, and takes no responsibility. All such information is provided solely for
convenience purposes only. The Money Alert is not affiliated with any of the firms or entities listed unless specifically stated. The Money Alert does not provide investment, tax or legal
advice. Please consult the appropriate professional regarding your personal situation.