What is the meaning of property tax deduction?
A property tax, or in other words, a millage rate, is an ad valorem tax on the value of a property.
The tax is implemented by the governing authority of the jurisdiction in which the property is located. It could be a national government, a federal state, a whole county or geographical region or a local civic body. Because of multiple jurisdictions, the same tax will have to be paid for the same property.
Often a property tax can be levied on real estate; it might be imposed annually or at the time of a transaction of real estates, such as a real estate transfer tax. This tax could be contrasted on a rent tax based on rental income or imputed rent on a land value tax, which is also levied on the value of land, which has excluded the value of buildings and several other improvements.
Under a property-tax system, the Government usually requires to performs an appraisal for the financial value of an each property, and tax is been assessed in a proportion to the value.
Types of Property Tax deduction :
The four broad property taxes are basically a land, a improvements to land (immovable type of artificial objects, such as a buildings), personal type of property (movable artificial type of objects) and a intangible property. Real property, which is also called real estate or reality, is the combination of land and improvements.
Real property is often based on taxes of its class. Classification is considered as the grouping of properties that are based on similar uses. Properties in different classes have been taxed at a different values. For example, In Israel, property tax rates are double for vacant apartments versus occupied apartments. France has several taxes on vacant properties, which successfully reduced the vacancy rate.
A special assessment of taxes is sometimes confused with property tax. These are two distinct forms of taxation that rely upon the property’s fair market value. Several other special assessments rely upon a special enhancement called a “benefit” for its justification.
The property tax rate is typically taken as a percentage may express it As “PER MIL” (amount of tax will be per thousand of currency units of as per the property value), also it is known as rate of millage or mill i.e. one-thousandth of a currency unit.
For calculating the property tax, the authority multiplies the assessed value by the mill rate and then divided it by 1,000.
E.g., a property with an assessed value of 50,000 USD located in a given municipality with a mill rate of about 20 mills would been have a property tax bill of about 1,000 USD per year.
Let’s see Property classes, tax rates, assessment rules and valuations of some places that vary by jurisdiction.
Hennepin county property tax Click here
Property tax california Click here
NYC property tax Click here
Alameda county property tax Click here
Property tax calculator Click here
Texas property tax Click here
Cook county property tax Click here
NJ Property tax Click here
India property tax deduction
Property taxes are implemented by either state government or even local civic bodies. Property tax like ‘house tax’ is a local tax on buildings, along with its appurtenant land.
It is also imposed on the Possessor, who is not the custodian of property as per 1978, 44th amendment of the constitution. It also resembles the US-type wealth tax and differs from the excise-type U.K. rate.
The tax power has been one of vested in states and a delegated to a local bodies which is specifying of valuation method, various collection procedures and a rate band. The annual rental value is the tax base or can even be said as an area-based rating.
Owners occupy and other properties not producing rent are assessed on cost and converted into a ARV by just applying a some percentage of cost, which is usually four per cent.
Most big-city municipals have taxes on vacant lands, and other smaller cities and rural areas that do not have any property tax on particular vacant lands.
In many cases, civic of bodies have a taxes that are exempted on all buildings and a lands used for any religious worship by public. It is cremation grounds, public burial & heritage lands, charitable and educational purposes, and a few agricultural land. Besides that, Central government properties have been exempted.
Instead, of a “service charge” is basically permissible under the executive order. Properties of various foreign missions also take advantage of tax exemption without requiring reciprocity.
The rate structure is flat on rural properties, but it is mildly progressive in the urban (municipal) areas, with about 80% of assessments falling in the first two brackets.
The United Kingdom property tax deduction
In the U.K., residential property or land ownership is not considered tax, a situation almost unique in the Organisation of Economic Cooperation and Development. Instead, the Council Tax can be usually paid by the resident of a property. Only in the case of unoccupied property, the owner becomes liable to pay it.
Guidelines of her Majesty’s Revenue and Customs state:
Council Tax is a property tax. In principle, it might be an allowable deduction in those instances where the property-based expenses are considered as deductible.”
It is stated by the Valuation Tribunal Services that:
“The tax is a combination of a property tax and a personal tax. Normally, where two or more persons are residing in a dwelling, the full tax is payable. If one person is residing in the dwelling, then 75% is payable. An empty dwelling only attracts 50% charge unless the billing authority has decided otherwise.”
The Council Tax mainly been depends on a value of a property. It is not been calculated as a simple type of percentage. Instead, the property can be allocated to a Council Tax band like 9 in England and 8 in Scotland and Wales. The Valuation Office Agency carries out valuation under Her Majesty’s Revenue and Customs (HMRC).
Stamp Duty is a Land Tax is basically it is a tax on property and a land that a people may have suppose to pay. When you ‘buy any residential property or any piece of land in Northern Ireland or England over a certain price’. Since July 2020 in the U.K., there is a freeze on stamp duty on the first 500,000 GBP of all property sales.
The tax rate when purchasing a property is 0, up to the value of 500,000 GBP. 5% for the next 425,000 GBP (the portion from 500,001 GBP to 925,000 GBP). 10% for the next 575,000 GBP (the portion from 925,001 GBP to 1.5million GBP). And 12% on the part of over a 1.5million GBP.
When the Stamp Duty Land Tax holiday ends at the end of June 2021, this will change and lower the property value; you have to pay 5%, from 500,000 GBP to 250,000 GBP. From 1st October, there can be an additional lower rate for the value of properties between 125,000 GBP and 250,000 GBP of 2%.
Additionally, when purchasing a property, the U.K. government levies Stamp Duty Land Tax which is commonly known as just ‘stamp duty on homes over the value of 125,000 GBP. The Stamp Duty, which is payable, is referenced to the house’s value, splitting the levies into percentages of the value of the increments of the house.
Stamp Duty is also eliminated on the properties 300,000 GBP or under for first-time buyers. If the property value for a first-time buyer exceeds this, they pay a percentage of the amount over the 300,000 GBP maximum value.
The United States of America property tax deduction
In the United States of America, property taxes on real estate is usually implemented by the local Government. The national Government implements no real estate tax nor even property tax. State governments implement 3% of the total property tax which is collected.
The other 97% is collected by various counties, local civic bodies, educational institutes, community colleges, and several other special-purpose governmental agencies like libraries, museums, parks, bridge authorities. Tax rates may vary across the states, between about 0% and 4% of the home value.
The main tax is the property tax which supports the local bodies like education, police, fire protection department, Government offices, construction and maintenance of roads, and maintenance of most of the infrastructure, e.g. sewers and drainage systems, connecting bridges, street lights and electrical. Many state and local jurisdictions also add personal property taxes.
Historical view of the property tax deduction
Since the dawn of governments, taxation has existed. Originally before the presence of the monetary system, taxes were mostly paid as a percentage of crops raised. Later, the property tax of the ancient world, like parts of medieval time of Europe and American colonies were rather based on the area of the owned premises rather than on its value. At last, the property’s gross output (for e.g. annual income) were been used as a base of a taxation.
Ancient Times property tax
The first-ever tax records, dating from about six thousand years B.C., were in the form of soil tablets found in the city-state of Lagash (Now it comes under the territory of present Iraq). The system was also known as Bala.
Each month, one particular area of the city was taxed, which allowed making such arduous tasks less difficult. Ancient Egypt also implemented taxes against grains, cattle, oils, beers, and lands. At that time, only one person out of 100 was literate (Educated). Some of these people were also tax assessors.
They usually keep records about the owners of the land along with its size. They also collect annual data by calculating cattle and checking crop yields. Suppose the taxpayer could not pay the tax, then they have been brought before the court. Tax assessors were also known as highly respected people due to their abilities and skills.
Medieval Times of property tax deduction
In England in the 11th century, peasants’ taxes were paid by peasants who use to take land on rent from its owner. The rent of the land was dependent on its productivity. It means the more productive the land is, the higher the rent will be.
During the period of 1070s, William the Conqueror established an early form of land taxation. It was common for cities to maintaining the records of the owner of the property. According to this, each parcel was measured and have been estimated.
Later period, after the period 1215, King John was limited in his power to raise revenue, so from this point, by permission of his baron, he could collect taxes. After 1290 normal people also started paying this type of tax based on the property’s location which is higher for those in urban cities and a lower in rural residents.
In the 16th century, even the King’s land was also taxed. The King’s power of taxation started to become even a weaker right after year of 1689 when any new law was been introduced, meaning that it could not be implement tax without permission of Parliament.
Age of the thirteen colonies
At the beginning of the New World, Pilgrims started landing at Plymouth and even started building their city in 1620. Pilgrims formed a group to protect themselves and also set laws, including taxation and assessments. All people are allocated in an equal proportion of land from which they have to pay tax.
In Boston, Puritans implemented a property tax for paying the expenses of the church and even other religious education.
Every person uses to pay these property taxes regardless of one’s religion. This particular system survived for more than a hundred years. The assessor of various taxes was the sheriff. The evidence system was the same as England (the assessors kept records of the personal estate).
It took the citizen situation into account as far as the property tax was concerned. It means that a widow with children was forgiven by property tax and was also guaranteed to receive a particular amount of money monthly.
On the other hand, people who have destroyed public property have to pay the cost of repairs with property tax.
The United States property tax deduction
After establishing the United States in 1776, raised taxes in most regions it is mostly through the property.
Later, Central Government is found out for this system which is not working as far more was it is spent than receiving from this measure.
At the last point of the 18th century, there was a certain dispute between Alexander Hamilton and Thomas Jefferson. The camp of Hamilton was raising taxes, mainly property tax, centrally for increasing the budget’s capacity and government power.
The camp of Jefferson was raising revenue locally as it was “sounded” much like a particular concept of democracy. Mr Hamilton had a strong head for finance; he helped establish the corporatist system that exists today. However, like high property taxes, the financial strategy mentioned above later realised as a disaster for him.
Finally, it established higher taxes (especially property) during the concerns of whether the war with France would be happening or not. National property taxes were enacted by Congress apportioned by population.
There were many protests until finally repealed the tax. On the other hand, they raised the local property tax as local governments could raise their revenue by this measure.
The period of 20th century Property tax
At the start of the decades of 20th century, they found out that the tax system in the U.S. could not equitably tax the tough economy. They implemented many reforms (trying to reduce reliance on property taxes).
The most important concern was that a new narrow personal property tax was established, especially for homeowners and intangible assets. Many U.S. presidents have tried to push for lower property tax and the implementation of income tax.
By the Great Depression, the property tax collection rates dropped as people’s income decreased steeply.
The Governments mostly cut property taxes and implemented sales taxes. After the Great Depression, there was a formation of many movements which addressed and claimed the Government with real tax reforms. Many of these reforms were also approved and remained the current law.
Future of the property taxes:
There is also some significant potential for increasing the property tax revenues in various developed and less developed countries, and many countries were aware of that.
New plans and strategies were prepared and have been considered. New technology and systems played a huge role in this, as they had improved tax administration greatly.
However, if there is an increase in property tax revenues, it wants to be done successfully, it requires taxpayers to support. For gaining taxpayers support, they have to receive improved local services, even greater transparency, which includes the explanations of how property tax bills have been calculated and how homeowners can apply for relief of property taxes.
An adequate amount of resources like human and financial are needed to be dedicated to administering the taxes. Finally, there needs to be a political will to undertake reform.
My Name is Nadeem Shaikh the founder of nadeemacademy.com. I am a Qualified Chartered Accountant, B. com and M.Com. having professional and specialize experience in field of Account, Finance, and Taxation. Total experience of 20 years in providing businesses solution in Taxation, Accounting, and Finance with all statutory compliance with timely business performance Financials reports. You can contact me on firstname.lastname@example.org or email@example.com.