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By that logic, though, I should get a federal tax deduction for the local excise taxes I pay on alcohol.
By the way, if we're going to offer a mortgage interest deduction, why not an interest deduction for credit cards, business loans, car loans. What is so special about houses as a product?
Actually, consumer interest used to be deductible, until the late 1970s or until the huge Tax Reform Act of 1986. (I forget exactly when this interest deduction was repealed.)
Interest paid by businesses (including interest on rental property) is still deductible, so if you have a business loan and a personal car loan, the interest on your business loan is deducible but not the interest on your car loan.
One of the benefits of owning a business is that you CAN deduct part of the interest on your car loan if your car is used partly in your business, many business owners do this.
More transactions (velocity), means more opportunity to get a higher appraisal and likewise... higher property taxes. I would think the turn-over time (switching owners) on apartment complexes are far longer than SFHs, Condos, town homes.
-chuck22b
My readings suggest that rental properties turn over (change ownership) on average MORE often than owner-occupied homes (SFR, condos, townhomes).
Put another way, owner-occupants on average own their homes longer than do landlords.
This is probably due to the federal tax breaks for owning rental property. (Landlords can expense on their tax returns all normal operating, tax, and interest costs, plus 'depreciation', and then when they sell a rental property, they can defer any tax on capital gains by buying a different rental property.)
Michigan has a cap on annual cap on increases in the taxable value of a property; until the housing bubble burst, taxable value typically ran well below property assessments. A study released around 2000 showed taxable value for rental properties around 30 percent higher than for owner-occupied homes of equal assessed value.
Because the cap is lifted when a property is sold - and the taxable value rises to the actual sale price - properties sold more often (in this case rental property) will have higher taxable value than properties sold less often.
There are some that propose to eliminate the income tax in favor of a national sales tax. I think they calculated it to be 23% (on top of sales tax) for the federal gov't to "break even". This new tax structure would eliminate income tax, Social Security, and Medicare employment taxes, and transfer taxes (ex. gift tax) and would apply to all goods and services including food, meds, housing.
To the national sales tax people, some housing is more equal than others.
Specifically, purchase of an existing ('used') house would not be taxed, although a portion of the mortgage interest would be taxed. (Interest above the 'federal funds rate' would be taxed.) Property taxes paid by a homeowner and mortgage principal would not be taxed.
On the other hand, since rent is considered a service, all of the rent paid by a renter (including property taxes embedded in rent) would be taxed.
If you think the current income tax (mortgage interest deduction) is unfair to renters, just wait for a national sales tax!
Renters by and large pay less in taxes than homeowners. Although real estate interest is tax deductible people still are paying the taxes locally. With renters the real estate tax is paid by the owner of the building which is always substantially lower than the per unit cost of single family homes. Therefore, the renter often does not end up paying their fair share for the services they receive.
A case-in-point is in my community where there are a high number of apartments and multi-family buildings. These buildings are taxed at a much lower per unit cost than the single family units in town. However, these buildings house many families with young children that add substantially to the education costs in the city. A 3 family that pays $3200 in annual taxes and houses three families with two children each results in $54,000 ($9,000 each) of annual education costs. Contrast that with a single family home that pays the same amount or higher in annual taxes yet only has two children.
I think that the deductibility issue should have its limits. I had suggested a fixed income tax rate with limited deductions including real estate deductions with a $7500 limit for a single filer or a $15,000 limit for a married couple. The details can be found in my plan, A Lincolnian Party Vision for America
Your Mileage May Vary (YMMV). Historically, local governments used general rules of thumb when deciding whether to allow apartments.
Studio apartments were viewed as a net revenue gain because they generated property tax revenue without the cost of educating children. Similarly, 1BR apartments generally don't generate school costs. 3BR apartments typically generate more in school costs than they generate in property tax revenue, and in most places are rare or nonexistent. 2BR apartments are somewhere in between, and might be either a slight net loss or a slight net gain to local government.
The National Multi Housing Council (NMHC), a nationwide organization of apartment owners and managers, did a study claiming that single camily homes on average generate about twice as many school kids as do apartment units.
Of course that doesn't show the whole story; for one thing apartments don't pay as much in property taxes as do single family homes (although apartments probably pay more than most people think - in most states they are taxed at higher rates - sometimes much higher - than single family homes). And renters with children are probably much more likely to rent houses than to rent apartments.
If the owner is renting out the place bellow the cost of ownership.. the owner Still has to pay the taxes. The renter actually is mooching off the owner in this case.
I don't really see why renters feel they should have so much entitlement. Really, renters pretty much take on ZERO risk in the game but complain about pennies on the dollar that owners pay in taxes. Maybe cities should charge renters for public service use.
-chuck22b
Tell ya what...if the owner thinks I'm mooching off him, I will GLADLY assume his mortgage and other ownership obligations. Fair enough?
As an involuntary renter who must ALWAYS pay current rents - not some long-term locked-in payment homeowners with fixed-rate mortgages have - I view renting as extremely risky, because there is no way I can project stable housing costs over a period longer than one year.
Indeed, at one point I had five rent increases in five years and had to move three times when I could not afford the new rent. At one point I paid more to rent a studio apartment than my next door neighbor paid to own a 3BR house. Now THAT is one heck of a lot of risk if you ask me.
try living here in long island where real estate taxes can now run 15-20k a year and tell me how predictable expenses are as an owner. you cant imagine all the expenses that go with ownership until you own one.
we bought a 2nd home in pa which we intended to retire into . we paid cash and never imagined the monthly costs when all the little things were added in . we arent even living there, its empty and it cost us a grand a month on average . the cost of homeownership can be huge unless your so handy you can do everything yourself.
actually we are selling it in the spring and decided we are going to go back to renting when the time comes. the money we save and keep invested will easily pay the 3% average rent increases a year forever and still leave plenty left over as a cushion..
here in nyc/long island it can take a decade until rents exceed the cost of buying.
Last edited by mathjak107; 03-27-2011 at 04:02 AM..
if the landlord has a brain his units are almost always full
if these property taxes etc didnt exist the rents would be a lot lower
Your Mileage May Vary (YMMV). Not all landlords are (or behave economically) the same.
Small Mom and Pop (aka 'amateur' or 'weekend') landlords own only a few (often one or two) units and in general need to keep them fully rented.
Big professional mega landlords own and/or manage hundreds or thousands of units and don't need to keep them fully rented. While they seek to maximize profits, those maximum profits are found at less-then-full rates of occupancy.
If you own 100 apartments, your maximum profit is almost always NOT realized at full occupancy.
Full occupancy of 100 units means there is SOME higher rent level which will bring greater profits - while also bringing a higher vacancy rate. Full occupancy of 100 units means you are leaving some money on the table - in this case, in your renters' pockets. If you raise the rent 10 percent and 5 people move out, you have increased your profit.
That's what professional mega landlords try to do. Mom and Pop can't do that because they don't own 100 units and they can't afford to have any units vacant.
If property taxes didn't exist - or were drastically cut - Mom and Pop wouldn't need to reduce rents because they're already fully rented, and mega landlords wouldn't reduce rents until some other landlord undercut them, which other landlords wouldn't do if they were already maximizing their profits.
None of the famous property tax cuts - especially Proposition 13 in California - led to lower rents. None.
It's not about BRAINS... it's about supply and demand.
the second part... may or may not be true... it'll still depend on supply and demand. If there is limited supply and a lot of demand... hey, charge as much as they are willing to pay. Taxes would have nothing to do with it.
Right...property tax cuts - even the biggest cuts like Proposition 13 - have NEVER resulted in lower rents.
Hmmmmmmm ... as a life long renter and a recent first time homeowner I'll accept that. However does that mean that renters will be obligated to pay local school and municipal taxes? After all, homeowners are subsidizing public education and municipal services through the taxes they pay.
In most states, property taxes are higher on rental property than on owner-occupied homes of equal value.
For example, in Michigan, the school tax rate on rental property is four times the school tax rate on owner-occupied primary residences.
In most states, landlords and tenants are subsidizing homeowners through property taxes.
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