In the United States, residential properties account for approximately 30% of household assets, while direct/indirect stock holdings represent only 25% of total household wealth. Statistics show that since 1995, annual U.S. home sales revenue has reached $150 billion, demonstrating the real estate sector’s vast growth potential and its role as a stable tax revenue source.
1. Property Tax Fundamentals
- Levied as “property tax” primarily on residential homes
- Over 95% collected by local governments
- Tax codes established at state level
- Some states (e.g., Texas, Florida) do not collect state income tax, increasing reliance on property taxes for public funding
2. Taxpayer Eligibility
- Applies to all residential property owners and landlords (excludes tenants)
- Example: California law mandates all local property owners as taxpayers
- Many states now require annual or biannual property declarations to reassess tax eligibility, especially for short-term rentals (e.g., Airbnb)
3. Valuation Methodology
- Based on assessed property value (typically 25-40% below market price)
- Example: California uses 40% of government-assessed market value as taxable base
- Under Proposition 13, assessed values in California generally increase by no more than 2% per year unless there’s a change in ownership or new construction
4. Dynamic Tax Rate System
Rates are recalculated annually through this process:
(Total Budgeted Property Tax Revenue ÷ Total Assessed Property Values) × 100% = Tax Rate
- Subject to federal tax ceilings
- Two rate types:
- Nominal Rate: Applied to assessed value
- Effective Rate: Relative to market value
- Some states (e.g., Illinois, New Jersey) have implemented override caps or local referendums to limit rate increases
5. Regional Rate Comparisons
- Jersey City, NJ: 4.125%
- Fort Lee, NJ: 2.18% (0.936% municipal + 0.276% county)
- New York City’s tiered system:
- 1-3 Family Homes: 0.85% effective rate
- Multi-Family: 4.75%
- Utilities: 3.47%
- Commercial: 4.77%
- California: Average nominal rate is ~1.1%, but with special assessments and local bonds, effective rates can exceed 1.25% in some areas
- Texas (e.g., Harris County): Effective rates often range between 2.0%–2.5% due to absence of state income tax
6. Key Tax Relief Programs (California Examples)
- Homestead Exemption: $7,000 deduction for primary residences
- Veteran Benefits: Up to $150,000 exemption for disabled veterans
- Senior Citizen Protection: Tax freeze for seniors (55+) downsizing homes (one-time use)
- Family Transfers: No reassessment for intra-family primary home transfers within state
- Builder Incentives: Tax abatement for developers selling completed homes
- Proposition 19 (passed in 2021): Expanded portability of base tax values for seniors, disabled, and disaster victims across any California county (up to 3 times)
- Green Energy Installations: Solar panels and certain energy-efficient upgrades are excluded from assessment increases under California Revenue & Taxation Code Section 73