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	Tax Property taxes     Property Taxation: Depreciation Taxation of Profit Adjusted Basis Home Mortgage Interest and Points Deduction   1031 EXCHANGES Capital Gains Tax Corporate Tax Corporation Dividend Tax Double Taxation European Union Savings Taxation Homeowners exemption Foreign Investment in Real Property Tax Act. Flat Tax Principles of Income Tax Income taxes Inheritance Tax Installment Sales Poll Tax Progressive Tax Property taxes California Propositions Purposes and Effects of Taxation Retirement Tax Sales Tax Sales leaseback Tariff Tax Credit, Exemption Equivalent and Tax Tax Rates Tax Treaty Direct and Indirect Taxation Value Added Tax Real property taxes are ad valorem taxes. Ad valorem is a Latin expression that means "according to value." Real estate tax rates are a percentage of the properties full cash value. Government favor real is the taxation because it is the one form of taxation that cannot be evaded. If a taxpayer fails to pay taxes, the levying body can foreclose on its tax lien to satisfy the taxpayer's obligations. In the United States, property taxes are deductible on homeowners in income tax return. However, special assessments for improvements are not a tax-deductible expense. If taxes are to be paid to a lender, the county sends a tax bill to that lender and copy of it to the owner. The owners copy states that it is for information only. If the owner is to pay the taxes, the original bill is sent directly to the owner for payment. Unpaid taxes become delinquent, and penalty is charged even if the taxpayer never received a notice of taxes due. It is the taxpayer's responsibility to make sure that tax payment deadlines are met. Supplemental tax bill. Before the property is purchased, the agent should explain to buyers that in the first year of ownership, they will receive two or three tax bills: the regular tax bill and one or two supplemental tax bills. Property taxes are built and paid for the fiscal year of July 1 through June 30. When a buyer purchases a new home, it takes time to notify the tax collectors office of the sale of the property and for the tax collector's office to issue the new property tax bill based on the new assessed value. If the new value is higher than the current assessed value, a supplemental tax bill is sent to the property owner that reflects the higher valuation for the remainder of the tax year. Acquiring a home. Usually the purchaser of the home will pay from 1% to 2% of the purchase price of the home in buying costs. These costs are found on the escrow closing statement and may be classified: -write off itemized deductions, -buying expenses added to basis, or -nondeductibe expenses. Itemized deductions include real property taxes, mortgage interest, and points(loan origination fees) in the year paid. These are written off on the taxpayers' Schedule A. Buying Expenses are usually the nonrecurring closing cost. Some examples are appraisal fee, credit report, escrow fee, termite inspection,notary fee,recording fee and title insurance. Nondeductible items are the closing costs that are neither a write off nor a buying expense. These include impound accounts, homeowner's insurance and certain origination fees paid to obtain FHA or VA loans. Loan origination fees on FHA or VA Loans do not qualify as interest; they are considered to be form of a service charge. Original Basis. Original Basis is the purchase price plus allowable cost.  For taxpayers who build their own home, basis would be the total costs of the building the home. This would include cost of the land, legal fees, permits, architectural fees, materials, and so forth. The taxpayer would not include the value of his or her own labor if no compensation were actually paid for the labor. For taxpayers who inherit a home, basis would be the fair market value at the time of decedent's death. This is called stepped up basis.   Acquisition Indebtedness. The term is defined as any indebtedness incurred in acquiring, constructing, or substantially improving any qualified residence and secured by such residence. The starting point for the deductibility of residential interest is the acquisition indebtedness (loan balance of the acquisition loan). The agent must be able to determine the present acquisition indebtedness for a client because the acquisition loan balance is crucial in determining  the qualified residence interest and its deductibility. The tax deductibility of interest for acquisition indebtedness is limited to $1,000,000 on both the principal and the second residence. Example1: Joe purchased two homes this year , a personal residence with first loan of $850,000 and second residence of loan of $450,000. The two loans amount $1,300,000. Only the interest on the first $1,000,000 will be allowed as acquisition indebtedness. Example2: Joe purchased a home for $200,000 five year ago with a loan of $160,000. This loan of $160,000 is the acquisition indebtedness. Today Joes loan balance is $150,000 so this amount is now the acquisition indebtedness. Five years from now, when the loan balance is $130,000m that amount will be the acquisition indebtedness. Acquisition indebtedness decreases with time.   Equity Indebtedness.  Home equity indebtedness refers to loans made, using the home for security , for purposes other than purchase, or home improvement. Equity indebtedness means any indebtedness secured by a home to the extend that the aggregate amount if such indebtedness does not exceed the fair market value of such qualified residence minus the acquisition indebtedness with respect to such residence. The aggregate amount treated as home equity indebtedness for any period cannot exceed $100,000 for the interest to qualify as a deductible expense. Example: Joe owns a home with a fair market value of $125,000. The acquisition indebtedness is $75,000. . He can obtain a 100% loan on the fair market value. The amount of home equity indebtedness would be $50,000 ($125,000-$75,000). If he could obtain a loan greater than $50,000, than prorated amount of interest would be personal interest, because the loan would be greater than the fair market value of $125,000. Even if a loan could be obtained above the fair market value, the IRS will not allow the additional interest as a deduction.   Points.  Points on the refinancing of a home must be amortized over the life of the loan for the purpose deduction. There is one exemption: If the loan is used to make home improvements, the points may be written off in the year they are paid.   Gain. The mortgage interest and real estate taxes are deductions. When a seller pays points for the buyer's loan, the points are not considered to be interest paid by the buyer. For the seller they are expense that will reduce any gain. The gain on the sale of residence is a capital gain. To calculate this gain, taxpayer needs these information: -Sales price -Adjusted basis -The selling price Gain = Selling price-Selling Expense-Adjusted basis Type of Gain. The gain on the sale of a capital asset, including a residence may be placed in one of the following categories: Realized gain(loss): When a home is sold, a gain or loss is generally realized, in other words, there usually is a potential taxable event. Recognized gain-The part of the realized gain for which income tax must be paid is called recognized gain. Losses on a personal residence cannot be recognized; that is, they may not be written off. Deferred gain-The part of the realized gain that may be postponed from recognition is deferred gain; the taxpayer may postpone paying it. Excluded gain-The part of the realized gain for which there is no tax obligation is the excluded gain. Excluded gain can be used with a personal residence up to $500,000 for married filling jointly and $250,000 for single taxpayer. Realized Gain = Recognized gain + Deferred gain = Excluded gain When a gain is realized, a part may be recognized or either all of the gain or a part may be excluded. The important point is that taxes are paid on only the recognized gain. Home Improvements. Systematically recording amounts spent for home improvements and retaining any and all receipts are of great importance to the homeowner. Homeowners are unaware of the ultimate tax implications of the home improvements or capital improvements that are added to their properties through the years. These improvements may be added to the homeowner's basis, making the adjusted basis greater and reducing the gain at the time of sale. Adjusted basis = Original basis + Home Improvements There is a great deal misunderstanding about what items are classifieds as home improvements. The IRS defines improvements differently for homes than it does for rental property. Some examples of home improvements: -floors, -heating units, -pipes and drainage (including replacement) -sprinkler system -landscaping Items that are not home improvements: -painting -papering -carpeting -drapes -furniture -replacement of built in appliances (stove, ovens, dishwasher) etc. Property Tax in Summary Property taxes are ad valorem taxes that an owner of real estate or other property pays on the value of the property taxed. This operates on the basic premise that under any system of property tax, the property owner is deemed to be the State and the entity in possession of the property the renter thereof. The taxing authority in this case, requires and / or performs an appraisal of the monetary value of the property, and the tax is assessed in proportion to that value. The forms of property tax used vary between countries and jurisdictions across the world. In the United States of America for instance, the property tax on real estate is usually assessed by the local government, at the municipal or county level. A tax assessor is a public official appointed by the governing body, who determines the value of the real property for the purpose of apportioning the tax levy. An appraiser may work directly for the government or for the private industry (and hired by the government for this task) and may determine the value of real property for any purpose. Tax assessor offices often maintain inventory information about improvements made to real estate. They also create and maintain tax maps, which they accomplish with the help of surveyors. On tax maps, individual properties are shown and identified using unique parcel identifiers. These tax maps help to ensure that no property is omitted from the tax rolls and that no property ends up being taxed more than once. Real property taxes are normally collected by an official other than the tax assessor, whose role ends at arriving at the legit amount to be paid as taxes for a particular real estate property. The assessment of an individual piece of real estate may be done in accordance with one or more of the normally accepted methods of valuation; the more commonly used ones being the income approach, market value or replacement cost. Assessments may be given at cent percent of the value or at some lower percentage and, in most, if not all assessment jurisdictions, the determination of value made by the assessor is subject to some sort of administrative or judicial review, if an appeal for the same is instituted by the property owner. Ad Valorem (of the total property value) property taxes are based on the fair market property values of individual estates and the local tax assessor then applies an established assessment rate to the fair market value. By multiplying the appropriate tax rate multiplied by the assessed value of the property, the liable tax due is calculated. These taxes are usually collected by municipalities such as cities, counties, and districts in many locations in the United States of America. These often fund municipal budgets for school systems, parks, libraries, sewers, fire stations, hospitals and other public amenities. Once a budget is determined at the municipal level, a legislative appropriation determines how the taxes should be collected and later distributed. After this is done, a tax authority levies the tax, an appeal is permitted though. Equalization is then considered by a board of equalizers to assure fair treatment. Following this, a tax rate is determined by dividing the municipal budget by the assessment role of that municipality. Thereafter, your tax rate multiplied by the assessed value of your property determines the tax you owe. Certain jurisdictions have both ad valorem and non-ad valorem property taxes that are levied, the latter is used to represent a fixed charge (regardless of value) for items such as street lighting and storm sewer control. In the United States of America, another form of property tax that exists is the personal property tax, which can target the following: o Durable goods (although typically household goods and personal effects are exempted) o Automobiles, boats and similar vehicles o Intangible assets such as stocks and bonds o Inventory Personal property taxes can be assessed at any level of government, though they are perhaps usually assessed by states.