Property Taxes For Rental Properties
Posted on April 29, 2008 in the Property taxes category
Property taxes for rental properties are normally higher than single-family properties. This causes much confusion for property owners in any state. They cannot understand why they are subject to higher property taxes since most are not making a profit on the properties in question. With people buying two family houses to help with the mortgage payment and property taxes, there are some frustrations over why they have to pay higher property taxes. Many property owners feel they are being singled out for trying to own a property for their family while providing housing for someone else as well.
The general rule for property taxes is that if you have a two family home, you are paying property taxes for two families in that taxing district. The home will be compared to other homes similar in structure as well as recently bought and sold homes to arrive at a fair assessed value. This however does not affect your status for taxes, the rates applied by the taxing committee is where your assessed value is used to calculate the tax due on the property. This is where they get you for owning a two family home. You can find out more information at your local taxing office as to how they calculate tax rates for single and two family houses.
Even if you are paying more property tax, you have more tax deductions allowed than a single-family homeowner does. This may were the taxing office justifies there taxing structure. Property taxes for rental properties are higher but you can claim depreciation on appliances if you supply them in the rental as well as any other furnishings. You also are able to deduct any advertising expenses, repairs, maintenance and weather related upgrades. You can also deduct insurance, cleaning expenses and supplies needed to keep the rental unit livable. With the added deductions that a single-family homeowner cannot deduct, the taxing situation may be evenly split.
Another thing to keep in mind when buying a two family house verses a single family house is that you have someone to help you pay the property taxes were a single family owner does not. If you do not make any type of profit, it may be because you are not charging enough for rent. Remember that the rent you collect is claim on your income taxes as well. Two family homeowners do have more advantages than a single-family homeowner, but not where property taxes are concerned.
If you are paying property taxes on rental properties that you live in one unit, you can talk with the assessors office to see of there is a lower assessment value for owner occupied rental properties. In some states, there are provisions for two family dwellings if the property owner occupies one unit. You just need to check with your particular community to see if there are any special guidelines for this type of situation. You can also view other property owner’s tax bills at the assessor’s office to compare assessed values and tax liabilities.
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- What Is A Rental Property Tax Deduction
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12 Responses to “Property Taxes For Rental Properties”
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I didn’t think about talking to the assessors office to get the taxes lowered for owner occupied units. I need to make a few phone calls, I think I have a few clients who may benefit from that.
Here in SC (depending on the county), investors (non-owner occupant) are taxed at 6% while Owner Occupants are taxed at 4%.
The tax man always gets his share! You can fight and get that number reduced though.
Great post and awesome blog
We just went through the largest tax increase in 15 years (in Zionsville, Indiana.) We have 7 rentals and with the tax increases, they all now negative cashflow and we’re trying to sell as soon as possible. It’s almost like the government is putting the nail in the coffin (with the bust in the real estate market plus the HUGE tax increases.) Actually, our state just passed some caps on the real estate tax increases, and it helped a little, but we’re still going to unload.
I know in RI the property taxes are very close for both single or multi-families. The trick is to make sure it is owner occupied. The homestead exemption it is called.
Great Blog! I’m interested in exploring the effects of differing tax rates for commercial properties vs owned homes. What are your thoughts on that?
Great post!
At my Country investors are taxed at 5% while Owner Occupants are not taxed.
In Florida, there is also the homestead exemption to consider. For owners who make the house their primary residence, they can receive a $50,000 exemption on property valuation. This exemption is not available to investors essentially raising their property tax.
Lynn Byrne
I’m not quite sure how it deals in United States. I’m from Malaysia, working as a property agent. I’d like to hear more information from you guys about properties in your country.
I’m not quite sure how it deals in United States. I’m from Malaysia, working as a property agent. I’d like to hear more information from you guys about properties in your country.
:))))
Boston Real Estate has a good article on this — an how you get the residential exemption by living in the unit. I know in Downtown Boston they calculate the real estate taxes differently than the rest of the state.
Maryland also has a homestead exemption. This means homeowners tax increases are limited.
Investors often forget that taxes could jump significantly based on the new price of the property.