Americans love to hate property taxes, despite the fact that local governments depend upon this levy to provide key services and programs to local residents. Discover what property taxes are used for, how to appeal property taxes and how property taxes impact property value.
What is the fundamental issue?
Real property taxes, along with other state and local taxes paid, are deductible for federal income tax purposes. According to the IRS, the average property tax deduction claimed in 2013 was $4,610. Without the deduction, taxpayers would be paying federal tax on funds already paid to state or local governments, which would be double taxation.
Members of Congress in both Houses and both parties are seriously talking about tax reform that would broaden the base and lower rates. Some House Republican leaders have expressed a goal of reducing the top tax rate for individuals to 25% on a revenue-neutral basis. This means that to “pay for” the lower rates, Congress would need to limit or repeal widely-utilized deductions, which could include state and local tax deductions. So far there has been no bipartisan legislation introduced that would reduce or eliminate state and local tax deductions.
I am a real estate professional. What does this mean for my business?
If the deduction for state and local taxes paid were repealed or limited, the costs of homeownership would rise.
NAR strongly supports deductibility of state and local real estate taxes, as well as other state and local taxes paid.Legislative/Regulatory Status/Outlook
As part of its budgets for the past several years, the Obama Administration has proposed reducing the value of all itemized deductions (including the state and local tax deductions) for upper income taxpayers. This would be done by limiting the value of itemized deductions to 28% for taxpayers who are in tax brackets higher than 28%. Thus, individuals who are in the 33%, 35%, or the 39.6% tax brackets would find their itemized deductions worth less under this proposal. In other words, an individual in the 35% tax bracket currently gets 35 cents of benefit for every dollar of deduction, where under the Administration proposal, the deduction would be worth only 28 cents per dollar. Individuals with incomes below about $180,000 would generally not be directly affected by this proposal.
Most members of Congress have opposed the President’s budget proposal. To date, limits on itemized deductions have not been part of the legislative agenda. In the current deficit environment, many in Congress say that "everything is on the table," but no bipartisan bill has been introduced repealing the state and local tax deduction. However, a tax reform bill authored by former House Ways & Means Committee Chairman Dave Camp (R-MI) in early 2014 would have repealed the deduction of taxes paid by individuals. State and local taxes paid by businesses would remain as a deductible expense.
The Camp plan did not garner any significant support from even House Republicans. Moreover, Camp has now retired from the House and the focus of tax reform in 2015 and so far in 2016 has been on business tax reform, and not on the individual side. However, many of the ideas in the Camp plan might be resurrected by other policymakers in future years, including limits to the deductibility of state and local taxes. In addition, in the summer of 2016, House Republicans released at tax reform "blueprint" that calls for the repeal of the deduction of state and local taxes paid. Therefore, NAR continues to watch this issue very closely.
Federal Taxation Committee
State and Local Issues Policy Committee
NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.
Understanding Property Taxes
Which Areas Collect the Most in Property Taxes? (Tax Foundation, Aug. 7, 2019)
Property Tax Definition (Investopedia, Jul. 1, 2019)
How Property Taxes Are Calculated (Investopedia, May 15, 2019)
U.S. Property Taxes Levied on Single Family Homes in 2018 Increased 4 Percent to More Than $304 Billion (ATTOM Data Solutions, Apr. 2, 2019)
2019’s Property Taxes by State (WalletHub, Feb. 26, 2019)
2018 Instructions for Schedule A (Form 1040) Itemized Deductions (Internal Revenue Service, Dec. 10, 2018)
Real Property Values Matter at Property Tax Time (The Register-Guard, Oct. 2, 2018)
The Case Against Property Taxes (and Two Alternative Taxes That Work) (Forbes, Sep. 14, 2018)
Tax Policy Center’s Briefing Book: How Do State and Local Property Taxes Work? (Urban Institute & Brookings Institution, 2018)
Property Taxes Impact on Property Value
As Central Ohio Home Values Rise, So Do Property Taxes (WBNS, Aug. 2, 2019)
Spiral of Decline Heavy Burden for Homeowners (Better Government Association, Jul. 26, 2019)
Reappraised Property Values, for Tax Purposes, Increase in Most Counties (KBZK, Jun. 26, 2019)
New Property Values May Not Equal Increased Taxes (The Excelsior Springs Standard, Apr. 15, 2019)
What's the Difference Between Your Home's Market and Assessed Value? (U.S. News & World Report, Aug. 29, 2018)
What Increases Property Taxes? (SFGate, Dec. 27, 2018)
5 Common Reasons Why Property Taxes Go Up, No Matter Where You Live (realtor.com®, Feb. 26, 2018)
3 Ways Tax Reform Will Hit Home Values (CNN, Jan. 10, 2018)
6 Things That Might Make Your Property Taxes Go Up (Architectural Digest, Jan. 4, 2018)
Challenging Your Property Tax Bill
An Appeal Can Lessen a Property Tax Bill (FEDWeek, Jun. 20, 2019)
How to Challenge Your Property Tax Assessment (Lawyers.com, Apr. 23, 2019)
8 Steps to Appeal Your Property Tax Bill (Kiplinger, Apr. 19, 2019)
How to Lower Your Property Taxes (HSH, Mar. 20, 2019)
Are You in the 60% of People Overpaying? Dispute Your Property Taxes (House Loan Blog, Feb. 1, 2019)
The Property Tax Appeal Process Explained (HouseLogic, 2019)
Are You Paying Too Much Property Tax? Check for Tax Exemptions (Quicken Loans, Sep. 4, 2018)
What to Do When Your Property Tax Increases (U.S. News and World Report, Apr. 27, 2018)
Some Owners Making Efforts to Cut Property Taxes (REALTOR® Magazine, Mar. 28, 2018)
Appraisers Key to Property Tax Appeals, Appraisal Institute Says (PR Newswire, Feb. 28, 2018) E
Property Tax Data by County (Tax Foundation)
Quarterly Summary of State & Local Tax Revenue (QTAX) (U. S. Census Bureau)
Significant Features of the Property Tax (Lincoln Institute of Land Policy)
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
Books, Videos, Research Reports & More
The resources below are available for loan through the NAR Library & Archives. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call the NAR Library & Archives at 800-874-6500 for assistance.
Property Taxes in Illinois—What is the Effect of Rapid Increases and Large Drops in House Prices on Property Taxes? (University of Illinois, 2011) [PDF link]
Challenging the Conventional Wisdom of the Property Tax (Cambridge: MA: Lincoln Institute of Land Policy, 2010) HJ 4120 B14
The Worst Tax? A History of the Property Tax in America (Lawrence, KS: University of Kansas Press, 1996) HJ 4120 F57
How to Reduce Your Property Taxes (Miami, FL: Genesis Press, 1995) HJ 3241 Ad5
Reduce Your Property Taxes (Los Altos, CA: Crisp Publications, 1992) HJ 4120 T97
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