Here’s what could change your US property tax bill in 2022 and beyond
Rising property values in the United States, potential federal tax changes, and concerns about Covid-19-related discrepancies in local budgets may lead some homeowners to wonder what to expect with property taxes in this country. 2022.
Of course, what Americans pay in property tax varies from state to state, but for most people, there’s no reason to panic, just yet.
Increasing property values will likely increase property taxes payable, but this will not happen automatically. Many homeowners won’t see a change in the assessed value of their home until their local appraiser deems it appropriate. It could be this year, or five years from now, depending on the appraiser’s office schedule.
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Some municipalities are increasing rates to cover expenses, but due to federal funding these increases may not be as large as in previous years. Other areas are lowering property tax rates to help residents rest after a few trying years.
In addition, wealthy homeowners can benefit from a break in the form of increased state and local tax deductions. The so-called SALT deductions have caused consternation for many since they were capped at $ 10,000 in 2017, and lawmakers in high-tax states have since sought to repeal that limit. Efforts are underway to raise the SALT deduction cap to $ 80,000 in the Build Back Better bill, which passed the House last month.
And while proposed limits to 1,031 exchanges – which allow real estate investors to defer capital gains – are not being considered at this time, the Biden administration may choose to resurrect the initiative in the future.
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Up, up and far
By the end of the year, median prices in the United States are expected to rise 12%, according to a report released last week by Realtor.com. Ultimately, this will lead to an increase in property assessments and therefore an increase in property tax bills. But this change may not be immediate.
“It depends on where you live as to when these changes in property values that we see occur,” said Marc Pfeiffer, senior policy researcher and deputy director of the University’s Bloustein Local Government Research Center. Rutgers in New Brunswick, New Jersey.
For example, in the Garden State, some municipalities conduct annual reassessments, while others divide their jurisdiction into regions and reassess one area per year for a few years. So, if a city is broken down by the assessor into three neighborhoods, each will be reassessed once every three years. Other New Jersey municipalities could wait five to seven years and have the entire municipality reassessed at the same time, Pfeiffer said.
In that case, it could be years before a homeowner sees the result of rising property values on their tax bill, he noted.
Some regions may also see higher property tax rates as cities seek to fund services during the Covid-19 pandemic. However, federal funding made up for this in many communities.
Take Chicago. Mayor Lori Lightfoot’s budget, approved by Chicago City Council in late October, calls for a $ 76.5 million property tax increase, less than the $ 94 million increase in 2021. Homeowners valued at an average price of $ 250,000 will see a $ 38 increase in their bills, according to city officials.
The Windy City properties were reassessed this year as part of a three-year process in Cook County. “Surprisingly strong real estate trends” were seen across the county, but the average increase in residential tax bills was around 1%, according to Scott Smith, spokesperson for the Cook County Assessor’s Office .
Other areas, including several municipalities in Florida and Texas, are lowering rates to give taxpayers a break or to keep income below state prescribed levels.
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Skip the salt
Affluent homeowners in New Jersey, as well as other high-tax states such as New York, Illinois, and California, can also keep an eye out for changes to state and local tax deductions that are currently part of the Build program. Back. Better invoice.
“This is a significant problem in the wealthier parts of New Jersey, in places where taxes are significantly higher than the state average of about $ 9,000,” Pfeiffer said. “Just because people are rich doesn’t mean they don’t wince when they write that check. “
The version passed by the House of Representatives last month will raise the $ 10,000 cap on the deduction for state and local taxes to $ 80,000 through 2030, the Wall Street Journal reported.
Democratic leaders have attempted to repeal the $ 10,000 cap on the so-called SALT deduction since it was introduced in the Trump administration’s 2017 tax cuts and jobs law. Previously, there was no cap, meaning taxpayers could deduct all of their property and state income taxes. of their federal income taxes. Currently, the deduction limit expires at the end of 2025.
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It remains to be seen whether the increased SALT cap will survive while the Senate debates the bill, which Democrats hope to pass by the end of the year.
The bill does not include the proposal to limit 1031 exchanges that allow investors to defer capital gains taxes on the sale of property. Currently, investors who sell properties at a profit can reinvest the money in another “like-for-like” property, deferring capital gains tax. This process, which is subject to certain rules, can be repeated and investors can avoid the fees indefinitely.
Earlier this year, the America’s Families Plan attempted to cap the amount investors can carry forward to $ 500,000 for individuals and $ 1 million for couples, according to Jesse Little, senior director of wealth planning at Wells Fargo Private Bank. Although the proposal was dropped for the current legislation, “it is not excluded”.
“It is certainly always important for investors to keep in mind, as there is no real certainty on what might happen over the next two years,” Mr. Little said. “It could definitely be part of a next wave of potential change.”