Love's Real Stories

Here in California, we launched over the “Fiscal Cliff” back in 1978, according to Proposition 13 haters. Proposition 13 froze real estate property taxes with a “two percent rule”- a limit for increases of no more than two percent per year. Millions and billions of dollars were lost from tax revenue, and the state has been scrambling and scratching for cash ever since.

Real estate property owners have been happy with the law. “Hands off, Mr. Tax Man;” they say, “stay out of my pockets when it comes to my property.”

Naturally, Mr. Tax man has been frustrated with Proposition 13, because real estate was the go-to place to find money back in the day. A little tax-raise here; a little tax-raise there, and presto! – A balanced budget. But no more, thanks to Proposition 13- find your money elsewhere, Tax Man.

Property owners have another benefit when it comes to taxes. When real estate values drop, the Tax Man can lower property taxes to match. In fact, he’s obligated to lower them, particularly if property owners appeal to the Assessor’s office and prove their property values have dropped significantly.

Frank Milo, for instance, bought his house in 2004 for $350,000. Four years later the value dropped to $250,000. “Hey,” he said, “I’m sitting here paying taxes on this turkey at $4,200 a year. If my house is only worth $250,000 now, my taxes should be $3,000 a year. That’s a hundred bucks a month I’m throwing down a rat-hole! No fair!”

Frank made an appeal to the Assessor’s office, had his property’s assessed value lowered to $250,000, and his tax bill lowered to $3,000 a year- he’s saving a hundred bucks a month.

But there’s a catch. When property values go back up, as they are now……… You guessed it- Mr. Tax Man can ignore the 2 percent rule for properties he lowered, and raise those taxes right back up.

Mr. Tax Man is twirling his moustache right now, raising values he was forced to lower, and sending out new tax bills. Frank Milo got his, and he’s not a happy camper. “My pay at work sure hasn’t gone up, but now my taxes are,” he said.

Beware. The Tax Man cometh.

“Under the new health care bill, did you know all real estate transactions will be subject to a 3.8% Sales Tax? If you sell your $400,000 home, there will be a $15,200 tax……… Oh, you weren’t aware this was in the Obamacare bill? Guess what, you aren’t alone. There are more than a few members of Congress that aren’t aware of it, either (the result of clandestine midnight voting for huge bills they’ve never read)………….”

The above is from an email that has been passed around like a bad germ. It causes people afflicted by it to say things like, “Hey, what the heck is this new Real Estate Tax all about?” People afflicted tend to suffer fear and loathing, and if untreated, can display angry outbursts, such as, “These government jerks are ripping us off again?!” One man called and said “I was going to sell my house – I’ve owned it for 50 years- now that the wife is gone. But I’ll stay here and rot before I give up any new government tax. They can pry it from my cold, dead hands.”

Let’s be perfectly clear. Or read my lips (politician-speak). There is no new Real Estate Tax.

There is a new tax that was porked into the health care bill, but it is not simply a real estate tax. It’s an income tax based on “unearned income” to pay for Medicare costs. “Unearned income” means profit on investments, sometimes known as Capital Gains. Real estate could be part of that income.

If you make less than $200,000 a year single-income, or $250,000 a year double-income, you don’t need to worry about any new tax.

If you do, the tax is 3.8% of any income from investments over the $200,000 or $250,000.

The income tax exclusion for the sale of a personal residence is still in place. No change. You can still sell your house and walk tax-free with $250,000 if you are single or $500,000 if you are married.

If you receive the germy email described above, please hit “Delete.” Please resist the “Forward” button.

Thank you.