mrsmaccmoo

Hi All

I know this has no doubt been covered before, but my searches havent found anything - sorry - so could anyone advise....

- when you buy a house, who pays the property transfer tax, buyer or seller? I thought it was like a UK stamp duty (so paid by buyer), but i keep getting contradictory info (this is for CT by the way).

- are property taxes basically like Council Tax? But paid annually? It seems far more expensive in the US (looking at similar sized houses) - am I right in thinking this is tax deductible in the US? I've read something about property taxes being capped, but this cap is lifted upon the sale of a house..... so does that mean that the property tax could suddenly double or treble when you buy a house??

Thank you - very confused about all this!

Pulaski

It varies a lot by state, but there isn't generally a property transfer tax. Most of the other deductions, of which there are many, are made from the proceeds of the sale i.e. paid by the seller.

In some states the property taxes can be very high, especially in the greater New York area and New England. .... That you're talking about the property taxes being capped makes me think that you may be talking about California, as not many states cap the tax increase like that.

mrsmaccmoo

Hi,

This is based on Connecticut - I read the property transfer tax was 0.75%..... sorry cant recall exactly where I read it, I've been trawling so many google searches..... but it did seem to be up-to-date info (in the last year or so).

Bluegrass Lass

I'm a native USC, and I've never heard of a property transfer tax, but it's possible this could exist in a few states. So I can't advise on that.

When we bought our house in KY in 2007, we didn't pay any kind of transfer tax at the time of purchase, but we did pay property taxes later in the year. Property taxes are not the same as council taxes. Basically you are being taxed yearly on the value of your house; this money could go for anything - but in KY I think it went primarily to fund public schools. You don't get any other services for paying this tax. You will still pay your water, sewer, trash collection bills. The local city government could vote to raise the tax rate at any time. I think we paid around .92% in the county we were in. You can have the property taxes divided evenly over the year and add it to your monthly mortgage payment, and then your mortgage company will pay it to the county gov't when it's due. Depending on your downpayment, some mortgage companies will require you to do this.

Every year, your mortgage company will send you a 1099 that states how much you have paid in interest and what you paid in property taxes. You can use the interest and the property taxes you've paid as a deduction on your taxes, to reduce your tax burden.

There will be a large variance in how/when counties do the valuation on the home. But generally speaking, if you purchase the home for $100k more than what it was last valued at, yes the property taxes could go up.

Does that help answer your questions? Maybe to find the property tax rate for your county, you can Google for your county's tax valuation rate or tax evaluation..something like that.

Yorkieabroad

Don't know how accurate it is, but a quick google came up with this website showing property transfer taxes broken down by state. Looks like Ct has a 2 tier tax based on property price

http://m.ncsl.org/issues-research/bu...fer-taxes.aspx

Nutmegger

Look at this CT attorney's Q&A site for relevant information such as this:

"Connecticut imposes a conveyance tax on the sale of real estate. This tax is paid by the seller of property at the time the deed of conveyance is recorded on the local land records. The conveyance tax form and the tax payment are delivered to the Town Clerk’s office simultaneously with the recording of the deed on the municipal land records. Different rates apply based on whether the property is residential or commercial; whether the property is vacant land or improved; and with respect to residential property, the tax rate varies depending on whether the selling price exceeds a threshold of $800,000."

http://www.josephgasparrini.com/lawy...y-2117793.html

sir_eccles

Yes, kind of like council tax. They are usually assessed by the city based on the size of your house. You will probably get a letter each year saying your property taxes are going up this is what it gets spent on (schools, policing etc...).

When you are buying the house your mortgage lender will usually set up what is called an escrow account for you. At the start as part of the closing process you might have to put in a chunk of cash to get it rolling. Then a small proportion of your monthly payment goes in to cover buildings insurance and property tax. Then usually twice a year the mortgage lender will pay off your insurance company and tax bills. You should then get an escrow statement where they project how much escrow they are collecting and paying out to make sure there is enough there.

You can do this yourself without an escrow account but then the onus is on you to get it done in a timely fashion and to make sure you've put the money aside.

rpjs

As others have said, the usual procedure when taking out a mortgage to buy a property is that an escrow account is set up. You will pay in to this account monthly at the same time as your mortgage payments (usually you make a single payment for both). Your local municipality should bill the escrow account directly for property taxes as they come due. If you require mortgage payment insurance because you have a high LTV this is also paid through the escrow account.

At some point ahead of closing, your mortgage company should work out an estimate of the closing costs you will have to pay on "closing" - the day you actually get the keys. This will take into account things such as any property tax already paid by the seller covering the period from which you take possession, title search costs, attorney fees, taxes and fees payable by you, which vary by state. They will also work out how much you need to deposit in the escrow account at opening to cover any immediate outgoings from it, such as upcoming property taxes.

Our experience was that we couldn't get an definite number for closing costs until pretty much the day of closing, but that the estimates were generally overdone so we weren't hit by an unexpected extra cost at closing.

Once you have taken possession of your house, contact the taxing authority or authorities (we have two here in NYS: our local village and the town which also handles county and school board taxes) to let them know that you're now the owners. If your purchase price is less than the current value the property tax is assessed at, they may well allow you an informal reassessment then and their, otherwise find out when tax grievance season is and how to file a grievance if you think it's worth doing. Also find out about any "homestead" discount and how to obtain it. The NYS one is called "STAR" - if CT has one it'll probably be called something different.

If you can get a reduction in your taxes, let your escrow account managers know. They may want to wait for a new tax bill showing your reduced amount, but if the amount is less than they estimated when setting up the account, you may see a reduction in your monthly payment and may even get a refund. After having successfully obtained our STAR discount and grieved our village taxes, we just got a four-digit refund from ours in the mail today, which was nice.

On the other hand, if you do any work on the property which requires a building permit, expect the buildings department to report what you've had done and how much you spent to the tax assessor so they can up your assessment next year.

Nutmegger

There is no homestead in CT.

http://www.cga.ct.gov/2012/rpt/2012-R-0104.htm

kins

The difference between how they assess council tax and how they assess property taxes is this... from what I've seen.

In the UK your house is in a property tax band depending on its value. So once you're in the top band your council tax doesn't get any higher whether the house is worth $1m or $10m. For example in Macclesfield the top band is £2,874.60 on a house worth £320,001 and over.

In the US the property tax is assessed on the value of the house. If it's say $18 per $1,000 then on a $1m house you'll pay $18k but on a $10m house you'll pay $180k.

This might be completely wrong but it seems to me that's partly how you end up with such high property tax rates here whereas you don't get such high council tax rates in the UK.

kins

The difference between how they assess council tax and how they assess property taxes is this... from what I've seen.

In the UK your house is in a property tax band depending on its value. So once you're in the top band your council tax doesn't get any higher whether the house is worth $1m or $10m. For example in Macclesfield the top band is £2,874.60 on a house worth £320,001 and over.

In the US the property tax is assessed on the value of the house. If it's say $18 per $1,000 then on a $1m house you'll pay $18k but on a $10m house you'll pay $180k.

This might be completely wrong but it seems to me that's partly how you end up with such high property tax rates here whereas you don't get such high council tax rates in the UK.

rpjs

The US property tax system is very similar to the old British domestic rates, the main difference being the US valuations are based on actual capital value whereas the old UK ratable values were based on rental value.

Pulaski

That might be true for palatial houses, but does not explain why unremarkable family homes from greater NYC all the way through New England to Maine have property taxes that are commonly in the $5k-$10k range, and sometimes more. Certainly when we looked at houses in New Jersey, Long Island, and Westchester county in 2002, property taxes on regular three and four bedroom 1,800 sqft +/- houses was typically around $10k.

FWIW, I now pay barely more per year than I would have for a month up there.

Yorkieabroad

One thing I've never understood with escrow is how you appeal your tax assessors valuation. Our neighbor that he never sees the valuation until he gets the calculation for the next years escrow. Consequently, he has never been able to appeal his valuation. We get ours directly around the middle of March, and have until end May to file an appeal, which I do every 3 years or so. My neighbors house is smaller, on a smaller lot, with less lake frontage and no pool, but his tax assessment is over 250k higher than ours, purely because he has never been able to appeal it. Is he just with a bad lender with poor communications, or is the lender supposed to appeal the valuation(doubtful) or do you just have to grin and bear it if you escrow?

Nutmegger

It is his house, he has every right to know what the taxes are. If his lender won't advise him, he should contact the assessor's office and just straight out ask what his assessment is each year. Also, many towns have the database of property taxes available online these days. Then he should check the town's website to see when they will be hearing appeals, make an appt., and go in armed with data on comparable houses to make his case for a reduction.