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The most hated tax? A leading candidate, if not the hands-down winner, is the local property tax, says Gerald Prante, an economist at the Tax Foundation, a Washington, D.C., research group.
The run-up in housing values in recent years has meant escalating property assessments and ensuing higher tax bills. Even remodeling your home can mean a larger assessment and tax liability.
"No tax riles people more," says Prante, who compiled a study of the effect of property levies.
Some of it is emotional. "A lot of people look forward to filing income tax returns because they get money back," he notes. But there are no refunds for property tax, which jabs with every monthly installment included in a mortgage payment or socks you with an annual bill.
In some cases, local governments have slowed the pace of assessment increases by, for example, delaying a full levy until a home is sold or phasing in increases gradually. But loopholes often allow sizable tax increases even with curbs in effect.
Increases in property tax because of exploding home prices have outpaced gains in personal income during much of the new century, according to the Tax Foundation. By contrast, during the 1990s, personal income generally grew faster than property tax.
Today's cooler housing market could slow the property tax take. Dips in home values could theoretically lead to lower assessments. But reassessments, except in the case of a home's sale, typically lag behind market shifts. And don't be surprised if local governments try to manipulate tax and assessment formulas or other provisions to make up for, or at least stem, revenue losses.
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Who pays the most? Houston; Providence, R.I.; Indianapolis; and Bridgeport, Conn., were the heaviest property taxers among large cities, based on 2004 tax rates. Honolulu; Denver; Cheyenne, Wyo.; and Birmingham, Ala., were among the lightest. Ranked for 2005 by county, which takes in the suburbs, residents of New York and New Jersey were most often hardest hit in either of two measures of burden: actual property tax paid or the tax as a percentage of home value.
| U.S. counties with the biggest property tax burden | |
|---|---|
County | Tax as % of real estate value |
1. Niagara, N.Y. | 2.81% |
2. Monroe, N.Y. | 2.73% |
3. Onondaga, N.Y. | 2.64% |
4. Wayne, N.Y. | 2.61% |
5. Chautauqua, N.Y. | 2.60% |
6. Fort Bend, Texas | 2.58% |
7. Erie, N.Y. | 2.55% |
8. Schenectady, N.Y. | 2.52% |
9. Cayuga, N.Y. | 2.44% |
10. Chemung, N.Y. | 2.42% |
11. Tarrant, Texas | 2.39% |
12. Camden, N.J. | 2.39% |
13. Oswego, N.Y. | 2.38% |
14. Oneida, N.Y. | 2.37% |
15. Allegheny, Pa. | 2.35% |
16. Williamson, Texas | 2.34% |
17. Salem, N.J. | 2.34% |
18. Broome, N.Y. | 2.31% |
19. Steuben, N.Y. | 2.31% |
20. Winnebago, Ill. | 2.31% |
Note: Median real estate taxes paid on owner-occupied homes for 2005 as a percentage of median home value in counties with populations of more than 65,000 Sources: Census Bureau, Tax Foundation | |
The federal government, at least for now, indirectly eases the property tax burden for many homeowners. Those who itemize deductions on their federal income tax return can deduct the real estate tax they pay, thus trimming their federal tax bill.
But unless Congress permanently fixes the currently flawed alternative minimum tax, the deduction could become harder to claim for many people. That's because a deduction for property tax isn't allowed when figuring the AMT, a levy that can supplant regular tax for some people and could soon attack many millions more unless it is revamped. Even absent the AMT question, some tax economists attack the property tax deduction as an unwarranted federal subsidy to high-tax areas.
The IRS, meanwhile, suspects that some homeowners deduct more than they should. One idea is to require local governments and others to report to the IRS the amount of property tax actually paid by an individual. That would let the IRS confirm the total deducted and also break out nondeductible fees, such as for trash collection, that some people wrongly include with the property tax deduction.
This article was reported and written by Leonard Wiener for U.S. News & World Report.
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