Tuesday, May 3, 2011

Why property taxes never go down along with property values


Well I learned the answer to to the above question the hard way ? In Long Island homeowner have seen their most valued asset home prices go down and property taxes either go up or stay flat. I thought it would be just easy as hiring a property tax law firm and fill out some forms. It must be a win win situation as there is no upfront cost and most of them usually take around 50% of what they save you from the first year. I get a letter in mail from such property tax law firms almost every other day.

So one day I decided to go with it after waiting so long since the properties in Long Island started declining  from its peak prices of June 2006 summer. I was just happy thinking I will save around $1000 dollars but after a few days I got a letter from law firm saying they can't reduce my taxes as my property assessment is correct with the town. It got me thinking how is that possible when my home price been declining for years now.

So I took out my property tax statements and started to compare and I see that the town has already assessed my property down by $25K without any contest. But then why my tax didn't go down? Well what I saw is that they increased the The Uniform Rate/Percentage so my total tax payment stayed almost the same.

So let's say your assessment for year 2009 was $10,000 and the Uniform Percentage is 10%. Then your
Tax = $10,000 * 10/100 = $1000

Now if the town changes your assessment for year 2010 to $9,000 and also change the Uniform Percentage is 11%. Then your Tax = $9000 * 11/100 = $990

That's only a $10 decline not a the $100 you would expect as your home value went down by 10%.
Now why did the Uniform Percentage go up? Here is why, when a budget is approved by a town its not a percentage like income tax or sales tax. Basically the town budget is a fixed amount. And then they reverse engineer the Uniform Percentage. Here is an example...

Let's a town ABC approves a budget $100 and there are 4 houses only in that town.
House 1 value = $200
House 2 value = $200
House 3 value = $200
House 4 value = $400

Year 1 NO change in Value
Total of all House values = $1000
So  Uniform Percentage = $100/$1000 * 100 = 10%

So each house have to pay 10% on assessed value
Tax House 1 = $20
Tax House 2 = $20
Tax House 3 = $20
Tax House 4 = $40
So the total tax revenue for town is $100.00

Year 2 House 4 files  a contest and gets the house value assessed at $350.
Total of all House values = $950
So  Uniform Percentage = $100/$950 * 100 = 10.53%
So each house have to pay 10.53% on assessed value
Tax House 1 = $21.06
Tax House 2 = $21.06

Tax House 3 = $21.06

Tax House 4 = $36.86

So the total tax revenue for town is $100.04(not $100 due to rounding)

Year 3 all houses are assessed lower by the town.
House 1 value = $150
House 2 value = $150
House 3 value = $150
House 4 value = $300
Total of all House values = $750 So  Uniform Percentage = $100/$750 * 100 = 13.33%
So each house have to pay 13.33% on assessed value
Tax House 1 = $20.00
Tax House 2 = $20.00

Tax House 3 = $20.00

Tax House 4 = $40.00
So the total tax revenue for town is $100.00

Now basically this is what happened with my house. They just adjusted it so no tax benefit to me. It seems like they did that across the board this year. So if someone contested the value previous year must have saved money and then if town reduced everyone's house prices next year except that house then it will be all good again but i don't think town computers are that smart. They will reduce it for everyone including that house so no or little changes in tax for anyone.
Lesson learned timing is important !

Well here is the other scenario what if property values go up ? Even in that case your property taxes should not go up. But they do go up? Why ? Because residents are too happy counting on their home values and usually don't care about increases in taxes during good times. So end up approving bigger budgets for towns, basically in the above example your would end up approving a $110 budget for town and end up paying more in taxes.

Well if you want to read all the technical details here is the link
New York Property Tax, how it works ?

1 comment:

Duffy said...

Thanks for sharing this information with us!
long island law firms

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Long Island Property taxes most important issue, say LIers

No surprise here ! To stop this ridiculous rise in property taxes we have to educate our fellow LIers and contact your representative that they should demand Speaker Silver respond to the pleas of homeowners across the state and support a property tax cap in New York. It has already passed the senate but is being stalled in the Assembly by Assembly Speaker Sheldon Silver.

Also this year we are seeing some enormous rise in property taxes in school districts such as
William Floyd 12.47% and Seaford 8.99%. Some school districts such as Middle country is resorting to blackmailing its residents. The deal for districts residents is either approved a 6.68% increase or the district is going to force 21.61% increase in tax levy.


Published by THOMAS MAIER at Newsday

By a wide margin, property taxes are the most important issue facing Long Islanders, according to a Newsday / News 12 Long Island / Siena Research Institute Poll. Property taxes were cited overall by 45 percent of respondents, more than twice the 21 percent who cited "availability of good jobs" as the second most pressing issue for Long Islanders. "Property taxes are really an issue here because it keeps the young people from staying on Long Island and it will prevent the older people from staying, too," Tafuri explained.

Property taxes also are a large part of why the 57 percent of those polled said Long Islanders are headed in the "wrong direction" rather than the "right track" in the poll. A similar margin said New York State was headed in the wrong direction as well.

Property taxes are a particularly raw issue in Nassau County, where 53 percent cited them as the biggest issue, compared to 36 percent in Suffolk. Islandwide, Republicans and people 55 years or older complained about property taxes the most. "The Democrats love to spend money and they have to get it from the taxpayers," said one poll respondent, a retired Republican who lives on Nassau County's South Shore.

School costs - the biggest part of property tax bills - were also on the minds of Long Islanders who cited "the quality of public schools" among their top concerns. "The first thing I would do is eliminate tenure for teachers in public schools to cut costs," said another poll respondent, a 50-year-old Garden City man who is a Republican and who did not want to give his name. Although he was happy that his two children attending local schools got a good education there, he said his family's property tax bill has been overwhelming.

Property taxes hit a chord with all respondents, regardless of age, race, gender, religion, location or party affiliation. In addition to identifying the most important issue, the poll underlined the intensity of Long Islanders' general feelings about property taxes, with 86 percent calling the issue "very important" and 11 percent as "somewhat important." Crime, schools, good jobs and health care also received strong reactions, with traffic congestion and the local environment getting milder reactions.