On Death & Taxes (mostly property taxes)

Uncle SamDeath and taxes – the only two things that are guaranteed in life.  Or so the saying goes.  I’m no expert on what happens around the world, but I do keep a bit of awareness on how it works here in the good old US of A.  Did you know that if your home gets foreclosed, tax debt jumps to the front of the line to get paid from the sheriff’s sale?  Did you know that most tax debt won’t go away in bankruptcy?

If you live within the boundaries of the Sioux Falls School district, did you know they just approved a property tax increase for the next budget year?  It went up an astonishing .011 mil for non-agricultural owner-occupied property!  Can you believe it?!?  .011 MIL!!!!

Wait.  What’s a mil?  No, it’s not a million.  Or even a mill, like where you grind grain into flour.

In short, a mil is 1/1000th of something.

Perhaps the easiest example to use is plastic.  If you pay much attention, the thickness of plastic is measured in mils.  Garbage bags, plastic drop cloths for painting, landscaping plastic to keep the weeds from growing up through your landscaping rock.  Plastic drop cloths might be anywhere from 1 mil thick (look at them and they tear) to 4 mils or more.  That means they are 1/1000 (.001) of an inch to 4/1000 (.004) of an inch in thickness.

When we are talking property taxes, a 1 mil levy is 1/1000 of the home’s value, or $1 of tax per $1,000 of value.

But wait, the Sioux Falls School District’s levy didn’t go up 1 mil.  Oh no, it went up .011 mil.  If your home is worth $100,000, your tax bill will go up $1.10.  Is your home worth $200,000?  That’s a $2.20 increase.

Are you ready for your mortgage payment to go up another $2.20 next month?  Don’t be.  That tax increase is over the entire year, so we have to divide that by 12 monthly payments to find the true impact on our monthly mortgage payments.

If you aren’t particularly crazy about math, here’s how the monthly increase will break down for a .011 mil increase according your home’s value:

Value              Increaseschool house
$100,000       $0.09 per month
$150,000       $0.14 per month
$200,000       $0.18 per month
$250,000       $0.23 per month

But wait!  THERE’S MORE!!!

Now listen very closely, because this is something home buyers and sellers miss a lot.

A home’s market value (what it would sell for) and its assessed value (what taxes are based on) ARE NOT THE SAME!!!

I’ll be open about this, so let’s use my home as an example.  Were it to go on the market right now, it would probably list between $170,000 and $180,000.  Compared to very similar homes in our neighborhood that have sold recently, I am fairly confident in that number.

Assessed property taxes are a matter of public record.  Minnehaha County, where I live, has a page on their website where anyone can search any address and look at the assessed value and property taxes due for the year.

Looking up my home’s assessed value, for tax purposes Minnehaha says my home is worth $125,898.  Because my tax bill is based on that number, I’m just fine with that being lower than the market value.

But wait!  THERE’S MORE!!!

Many counties also apply an equalization factor that further adjusts the taxable value of a property to try and make things more equal among property owners.  It appears the equalization factor on my home is about .924 which means my tax bill is actually based on an ‘equalized value’ of $116,330.

Man, that’s a lot of math.

The short but painful reality of the increased taxes for next year?  My property taxes for the school district will go up a total of about $1.28 for the year.

Going to have to tighten the budget for that one….(insert sarcasm here)

There are a couple of items to note:

  1. Here, the school district is only one of three entities taxing my property.  I also owe to the city and to the county, so they could also affect a change on my total tax amount.
  2. Our school district is considering at least a couple of new buildings.  If approved, that could add to my tax bill as well.

A tax increase is a tax increase and is less money in my wallet…. A whole $1.28 less this year for the schools.  A few years ago I listened to a school board candidate talk about working to increase teacher salaries and in the same breath talk about not raising taxes.  Opposing subjects, both of which voters want to hear.  Taxes are an emotional subject that can bring out the worst in any extended-family gathering and so often require a careful balance in conversation.

Like any element of personal finances, before we melt down we need to take a logical look at the facts.  A tax increase sounds bad, until we realize it’s a tax increase of only $1.28 for the year.  Items that may be quite overwhelming to us may not need to be.  Budgets that seem completely out of control may be closer to in-check than you think.

You need not be overwhelmed by your financial situation.  If you are or at least see yourself headed that way, there is help available.  While we don’t have money to throw out, the counselors at the Center for Financial Resources can walk with you and help you identify goals and steps to accomplish those goals.  Appointments are available in-person, by phone, or online.  You can schedule an appointment by calling us at 605-330-2700 or by visiting our website.

 

written by Breck Miller

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