Real Estate Tax

Own a home? You’ll pay tax on it. Own a high-rise? Well, congrats. You’ll pay a tax on it as well. Own an airplane? Well, congrats again...and yep, you’ll pay a tax on it as if it was real estate.

So how do you know how much tax you owe on a given home or building? Well, each state is different, or at least has its own laws. And generally speaking, real estate taxes are local, i.e., local to your state, and sometimes the county you live in. They are not federal.

For example, if the state of California is the one collecting your real estate tax, the federal government in Washington just kind of coughs and looks away when you pay up.

So how much do you pay?

Well, in most states, the amount is based on the purchase price and then carries an escalator. That is, if you paid a million bucks for an awesome, 2-bedroom mansion in Palo Alto, then you’d pay 1.25 percent of the purchase price of a million bucks. Or, said another way, you’d pay $12,500 in taxes each year on that home, and those taxes would go up a little bit each year, such that they rose roughly along with inflation.

That’s a price set by the purchase price. In other states, like Texas, home prices are assessed “regularly”...whatever that means. Maybe every few years, every year, if the owner, uh, asks?

Why would an owner ask for a re-assessment of taxes? Well, often homes are bought in a hot market, and then for a while go down in value. So, by having the home reassessed likely for a lower price, the owner saves money on taxes. Commercial buildings have different tax systems, but are more or less based on the same parameters as homes, only usually with a lot more zeroes on the end.

So where does all this real estate tax go? Well, back to the state to, uh...run things. But also to the local authorities, where a big chunk of the tax dollar goes to local public schools to pay for teacher’s pensions, secretaries, and, yes, maybe one or two illicit Bermuda vacations.