Property taxes in the US are an essential source of funding for state and local governments since they support the construction of roads, schools, emergency medical services, and other services.
Property tax rates can significantly affect corporate investments and residential decisions, as they differ significantly between states and cities. Accountants can further solidify their position as trusted advisors by assisting clients in managing property taxes.
It is essential to recognize the importance of property taxes as a significant funding source for both state and municipal governments in the United States. Over 30% of all state and local tax revenues and over 70% of all local tax revenues come from property taxes.
Real property taxes, which apply to residential or commercial land and structures, are arguably the ones that taxpayers are most familiar with. However, tangible personal property (TPP), such as vehicles and business equipment owned by individuals and businesses, is also subject to taxation in many states.
Property taxes on real estate
Property tax encompasses real estate property taxation. It alludes to the tax imposed on “real property,” which includes buildings and land used for residential or commercial purposes. Cars and boats are examples of tangible personal property that is not covered.
Can Real Estate Taxes Be Capitalized On Investment Property?
Under Internal Revenue Code Section 266, there is an election for taxpayers who possess unimproved or undeveloped land as an investment to capitalize costs, including property taxes. Annual elections are held for the position. Only unimproved or unoccupied property is eligible for the 266 elections in years when the property does not provide any revenue.
Variations In Property Taxes Between States
States have different property tax laws; some rely more on property tax money than others.
Let’s talk about TPP taxation, specifically inventory taxation. In one way or another, fourteen states impose TPP tariffs on inventory. For instance, cities may impose inventory taxes in Georgia, but state property taxes do not apply to inventories. Except for leased inventory, inventory in Michigan is exempt from property taxes.
Additionally, there is taxation on equipment and apparatus. TPP taxes are applied to machinery and equipment in thirty-six states. Furthermore, in comparison to other types of TPP, agricultural machinery and equipment frequently have lower assessment ratios or millage rates. Local governments employ different techniques to compute their factual property tax bases and assessment levels. Additionally, some jurisdictions only tax a portion of the property’s assessed value, while others levy taxes on the entire assessed value. For example, the District of Columbia levies taxes equal to 100% of a property’s assessed value. In the meanwhile, the tax levied by South Carolina counties on owner-occupied properties is limited to 4% of their assessed value.
How Can One Obtain A Property’s Tax Information?
In addition to a client’s personal property tax records, tax information on a property can be obtained by phoning or emailing the assessor or collector for the chosen tax jurisdiction online. Additionally, valuable resources include databases maintained by tax districts or aggregators of property tax information. Nevertheless, a comprehensive property tax solution is a more sensible strategy.
Finding the tax information and standards for each jurisdiction can take time and effort for companies with multiple locations. Additionally, it makes manual errors more likely.
One significant area of risk and vulnerability to taxes is property taxes. In addition to administrative expenses and cash mismanagement, manual errors can also have an influence.
