Random Property Tax stuff (Austin, Leander: sale, real estate market, 2015)

[Trainwreck20]

While looking at 'what if' scenarios as my wife and I approach retirement, I made a property tax projections spreadsheet. Of course, trying to project into the future (especially more than a few years) is uncertain, at best, I did try to make a stab at it.

Anyway, in the CoA where I currently live I have 5 taxing entities:
Austin ISD
City of Austin
Travis County
Travis County Health Dept
Austin CC


In 2019:
The official combined tax rate was 2.1449.
The effective tax rate was 1.93991 (considering exemptions).

In 2015
The official combined tax rate was 2.2961.
The effective tax rate was 2.0526.

All the entities had lowered their rate except ACC, which increased around 4% over those 5 years; however, it is the smallest rate of the five.

The total assessed rate was down overall 6.5% and my house increased by 24%.

Decreases in ISD tax rates are significant, since those will be frozen once I hit 65 (AISD was down 6.7% over those 5 years).

Theoretically, my currently $434K appraised house would increase to $1.4 MM (assuming an effective 4%/yr appreciation) by the time I turned 85, and we would be paying ~$17k/yr in taxes. The school-tax freeze would be reducing the bill from around $25k/hr in taxes, so around an $8k 'savings'.

Between now and then, I would pay $378k total in property taxes.

[CarnivalGal]

Yep, although I think the $1.4MM evaluation may be a bit ambitious. We are on track for our property taxes to exceed our mortgage in 2 years.

[Austin97]

couple of caveats

Your taxes are based on the budgets not on the value of your home. The value of your home essentially determines your proportion relative to your neighbors. The rate gets set based on the budget and how much they need to raise.

The state legislature capped city taxes, but not ISD taxes. However if austin can get more families attending schools then we might pay less to recapture. However if things keep going the way they are going we will pay more to recapture and your total taxes could go up faster.

approx 12% of your taxes go to recapture.

If your taxes go up more than 5% in a year you can defer them until you sell. The interest rate on the deferments is a hefty 8%

[riaelise]

We already pay 11,000 in taxes and the other reason why taxes have gone down this year is because we successfully appealed. But I fully expect WCAD to "catch us up". Year over year the taxes have gone up even if the rate has gone down. Even in a "down year" resale wise, the appraised values go up by 10k "just because", and that extra 10k means that the coffers get a raise each year. Getting tired of it, especially since Trump's master tax plan capped tax deductions at 10k)

When I enter my retirement years, I'm going to unload myself of this house. As much as it pains me to say it, it is too expensive to maintain even if we pay the note off and I don't want to work any longer than I have to.

In fact, we're thinking of just pocketing the money we make from the sale and RENT. Probably in Gtown, or somewhere "out there".

[Trainwreck20]

Originally Posted by CarnivalGal

Yep, although I think the $1.4MM evaluation may be a bit ambitious. We are on track for our property taxes to exceed our mortgage in 2 years.

That is my gut reaction, as well, but I just don't have any ability to put that in good context. It is around 30 years from now, beyond my ability to 'eye-ball' it. My last house (bought 21 years ago for $100k) is now $300k. That is around 5.3% per year over that time period. If you told me in 1999 that that house would be worth $300k, I would have laughed. I did not understand then how 'close in' that location would be - the land appraisal is now well over the improvement appraisal. It is also a 1/4 acre lot and on the 'low end' for that neighborhood, which certainly helped appreciation.

Anyway, since I was trying to project taxes, higher value was conservative for that purpose. And inflation is ~2-3% a year, so that isn't that far above just average inflation. $1.4MM will not really be worth all that much .

[Trainwreck20]

Originally Posted by Austin97

couple of caveats

Your taxes are based on the budgets not on the value of your home. The value of your home essentially determines your proportion relative to your neighbors. The rate gets set based on the budget and how much they need to raise.

Yes, but it is hard to project that out very far. I could only easily get the last 5 years of data. I can toggle the spreadsheet to use the current tax rates for the next 30 years. That makes my 'final year' (age 85) taxes go up by $2,000/yr (from $16.8k to $18.8k). 'Lifetime' taxes go up by $40k. The critical year are from now to 65, as at that point the change in ISD rates have no effect.

Originally Posted by Austin97

The state legislature capped city taxes, but not ISD taxes. However if austin can get more families attending schools then we might pay less to recapture. However if things keep going the way they are going we will pay more to recapture and your total taxes could go up faster.

approx 12% of your taxes go to recapture.

As long as values go up, though, the ISD rate should not go up, at least not significantly. The last five years have seen the rate drop by >1% per year, on average.

Originally Posted by Austin97

If your taxes go up more than 5% in a year you can defer them until you sell. The interest rate on the deferments is a hefty 8%

I saw this, but am not worried so much about paying the taxes as preserving wealth. I have a disabled child that will likely never be able to earn an independent living, so making sure she is provided for (monetarily) once we are gone is the end goal.

I also seem to recall it was not actually based on the increase in taxes, but the increase in assessed value (independent of rates?), but I don't recall, so maybe it was. In any case, not a lot different in the end. At 65 we could defer ALL property taxes if we decided to.

[Trainwreck20]

Originally Posted by riaelise

We already pay 11,000 in taxes and the other reason why taxes have gone down this year is because we successfully appealed. But I fully expect WCAD to "catch us up". Year over year the taxes have gone up even if the rate has gone down. Even in a "down year" resale wise, the appraised values go up by 10k "just because", and that extra 10k means that the coffers get a raise each year. Getting tired of it, especially since Trump's master tax plan capped tax deductions at 10k)

We used to appeal pretty much annually (back in the 2000s), but not often now - a few times they have greatly undervalued the house based on our comps, and the rest of the time it is pretty close. Our house is 'modest' for Austin (our current taxes are <$9k), but we still can't itemize realistically - the standard deduction is so large now, that it effectively would cover us to much higher tax bills.

Originally Posted by riaelise

When I enter my retirement years, I'm going to unload myself of this house. As much as it pains me to say it, it is too expensive to maintain even if we pay the note off and I don't want to work any longer than I have to.

In fact, we're thinking of just pocketing the money we make from the sale and RENT. Probably in Gtown, or somewhere "out there".

We may sell, this was just a look at what the taxes would be if we stayed. On paper, the house could potentially appreciate by as much as $600k more than the taxes we pay on it. Even at an annualized appreciation of 2%, the house will be worth more than the taxes paid on it.

Renting it might be an option. Once we pass away, the house will enter a special needs trust. If she stays, that is fine, but if she moves, then the trust will either sell the house or rent it out, depending on the finances.

[Austin97]

Originally Posted by riaelise

We already pay 11,000 in taxes and the other reason why taxes have gone down this year is because we successfully appealed. But I fully expect WCAD to "catch us up". Year over year the taxes have gone up even if the rate has gone down. Even in a "down year" resale wise, the appraised values go up by 10k "just because", and that extra 10k means that the coffers get a raise each year. Getting tired of it, especially since Trump's master tax plan capped tax deductions at 10k)

When I enter my retirement years, I'm going to unload myself of this house. As much as it pains me to say it, it is too expensive to maintain even if we pay the note off and I don't want to work any longer than I have to.

In fact, we're thinking of just pocketing the money we make from the sale and RENT. Probably in Gtown, or somewhere "out there".

the extra 10K increase in appraisal does not mean the coffers go up. The coffers go up because budgets go up. The tax rate is set to generate the budgeted amounts.

[CarnivalGal]

Even if you decide to sell the place and rent something, rents increase as housing prices and taxes increase. So even though I pay $1,000 a month in property taxes right now, there's no way I could rent anything near my home for that amount. Even the cheapest apartment in my zip code is still more per month than I pay in taxes (I just did a quick search). Assuming the house is paid off, as in the scenario you presented, taxes+insurance on a house owned outright is still probably going to be less than rent+insurance on something else.

The only way to really lower your monthly payments is to downsize substantially and move pretty far out. But pretty far out is getting farther and farther. Leander used to be that for a lot of people, because they couldn't afford to live closer. But areas like Leander are some of the hottest real estate markets around now.

[Trainwreck20]

Originally Posted by CarnivalGal

Even if you decide to sell the place and rent something, rents increase as housing prices and taxes increase. So even though I pay $1,000 a month in property taxes right now, there's no way I could rent anything near my home for that amount. Even the cheapest apartment in my zip code is still more per month than I pay in taxes (I just did a quick search). Assuming the house is paid off, as in the scenario you presented, taxes+insurance on a house owned outright is still probably going to be less than rent+insurance on something else.

The only way to really lower your monthly payments is to downsize substantially and move pretty far out. But pretty far out is getting farther and farther. Leander used to be that for a lot of people, because they couldn't afford to live closer. But areas like Leander are some of the hottest real estate markets around now.

Yeah, we are (almost) definitely not selling until are kids are out of the public schools, which is another 8 years; that also corresponds with my target retirement date. My wife probably won't retire for a few more years after that, but who knows? If all goes well, maybe she will retire at that point, as well. If/when we move, it will most likely be to buy a much cheaper place and we won't carry a note. We would presumably invest the excess. That all gets quite complicated - relocate in-state, another state, urban or more rural, how much less expensive, etc.