© 2008 by South-Western, Cengage Learning

Chapter 15Chapter 15

Charles J.Jacobus

Thomas E.Gillett

© 2008 by South-Western, Cengage Learning

Georgia Real Estate Georgia Real Estate An Introduction to the ProfessionAn Introduction to the Profession

Seventh EditionSeventh Edition

Chapter 15Chapter 15

Taxes and AssessmentsTaxes and Assessments

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Property TaxesProperty Taxes

Budget and AppropriationAppropriation process

Appraisal and AssessmentAssessed Value: all taxable property is appraised

Ad Valorem Taxes According to value

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Property TaxesProperty Taxes

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Property TaxesProperty Taxes

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Mill Rate Dollars perHundred Thousand

Schooldistrict

40 mills $4.00 $40.00

City 30 3.00 30.00

County 10 1.00 10.00

Total 80 mills $8.00 $80.00

Dollars per

Apply the Tax Rate

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Calculations using Mills

85 mills = .08585 mills = .085 215 mills = 2.15215 mills = 2.15 5 mills = .0055 mills = .005

Move decimal:Move decimal: Tax appraised valueTax appraised value Assessed valueAssessed value Millage rate Millage rate

(e.g., 80 mills; (e.g., 80 mills; see previous slide) see previous slide)

Result: Tax BillResult: Tax Bill

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Other Taxing MattersOther Taxing Matters

Unpaid property taxesRedemption Period

Property sold at auction

Tax Deed

Georgia: tax certificate / certificate of sale

Redemption period is one year

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Other Taxing MattersOther Taxing Matters

Assessment Appeal

Assessment Rolls - assessed values of all property within the jurisdiction

Assessment Appeal Board - rules on property owner’s complaint of over assessment

Board of Equalization - reviews and adjusts taxes to achieve parity

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Other Taxing MattersOther Taxing Matters

Property Tax Exemptions

Government and government agencies Religious and charitable organizations Hospitals Cemeteries Tax reductions to relocating businesses Senior citizens

Property Tax Variations

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Special AssessmentsSpecial Assessments

Improvement districtPublic improvement: benefits the public in general

Forming the improvement District

ConfirmationLocal government ordinance is passed

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Special AssessmentsSpecial Assessments

Bond IssuesSpreads the cost over a period of years

ApportionmentFront foot basis

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Tax owed on profit from selling an asset held for more than one year.

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Calculating the BasisCalculating the Basis

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Calculation Amount RealizedCalculation Amount Realized

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Calculating the Gain on SaleCalculating the Gain on Sale

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$90,000 Purchase price + $500 closing costs Basis $ 90,500

$3,500 landscaping and fencing Basis $ 94,000

$15,000 Bedroom and bathroom Basis $109,000

$125,000 Sales Price

$8,000 commissions and closing costs

Amt. realized $117,000

Amt. realized $117,000

Less basis -$109,000

Equals gain $ 8,000

Calculation of GainCalculation of Gain

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Income Tax ExclusionIncome Tax Exclusion

Owned & lived in house any 2 of the last 5 years

Married filing jointly – exclude up to $500,000

Single – exclude up to $250,000

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Capital Gains Tax RateCapital Gains Tax Rate

Tax Bracket 1/1/01 – 5/5/03

5/6/03 –12/31/07

2008 2009

10% & 15% 8% / 10% 5% 0% 10%

25% & up 20% 15% 15% 20%

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Capital GainsCapital Gains

Installment Method

Seller finances the sale

The tax on the gain is spread

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Property Tax & Interest DeductionsProperty Tax & Interest Deductions

State & local real estate taxes

Mortgage Interest

Interest on Improvement District Bonds

Prepayment penalties

Discount points

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Interest Deduction LimitationsInterest Deduction Limitations

Principal Residence & one other

$1,000,000

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Taxes Taxes

Impact on Real Estate

Agent’s Liability for Tax Advice

GA. Conveyance Tax Ten cents per $100 or

any part of $100

Sales price minus any assumable loan

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Key TermsKey Terms

Ad valorem taxes

Adjusted sales price

Assessed value

Assessment appeal board

Basis

Documentary tax

Installment sale

Mill rate

Tax certificate

Tax lien