Are you looking through the homes for sale in Fruitland, Idaho? Don’t just consider the purchase price - also, think about other expenses such as property taxes.
Life only has three constants: change, death, and taxes. As Americans, we're taxed on a lot of things that we often don't even know. There's income, sales, probate (death and taxes), there are surcharge taxes for excessive income and there are real estate taxes. In real estate, there are 3 taxes to be aware of, real estate or property taxes, real estate sales tax and capital gains tax.
What Is a Property Tax?
Many homeowners may confuse different types of taxes. After all, they seem to sound the same! To make sure you end up paying the right amount (and you don’t get into trouble with the taxman), let’s define property tax.
A property tax is an ad-valorem tax, which means how much the homeowner pays depends on the value of the home at that period. The local government, including the state, city, and county, can impose it. As long as you own a property such as a house, land, or both, you may need to pay this tax.
It is different from a real estate sales tax, which is equivalent to 6% in Idaho, although cities and municipalities can collect their own below that rate.
It is not capital gains tax as well, which the IRS levies on the net gain from the sale of the property. Homeowners, however, can avoid this if the home they’re selling is their primary residence, and they lived there for two out of the five years prior to the sale.
The easy way to remember these is that Sales Tax and Capital Gains occur when you sell the property, but property taxes are annual.
The local government uses property taxes to fund public projects. These can include schools, roads, and even housing. For this reason, the revenues are necessary for the state to survive.
How to Calculate Property Taxes
When calculating property taxes for homes for sale in Fruitland, Idaho, you use the following formula: (assessed value of the property - tax exemptions) x mill levy.
Mill levy is the tax rate used by the municipality, city, and other jurisdictions such as school districts against the property’s assessed value. The purpose is to ensure the government has sufficient tax revenues to cover yearly expenses.
The general formula for calculating the levy is this: projected revenue by the jurisdiction divided by the total property value in the area.
As an example, let’s say Fruitland needs $200 million of revenues for 2020 expenses. Meanwhile, the overall value of the properties totals $1 billion. The mill levy is then 0.2. Another way to express it is a mill is one-tenth of a cent.
If your home is within different jurisdictions, you need to add all the mill rates to get the property tax.
Suppose you’re under a school district, which is also within a county and a city. Each of these will then have different mill rates. You further assume the following details:
- The total assessed property value within the area is $2 billion.
- The school district needs $50 million, the county requires $200 million, while the
- The city needs $500 million to operate.
Using the formula above, you will get the following mill rate:
- School - 0.025
- County - 0.10
- City - 0.25
The total mill rate is 0.375 or 375 mills.
To know the value of the property, the assessor considers many factors and uses different methods. These include the following:
- 1. Market Value
In this technique, the assessor determines the value of your home if ever it gets sold in the market within a particular period. They usually consider the prices of similar homes for sale in Fruitland, Idaho, as well as the historical data of sold properties.
- 2. Cost
The assessor will determine the total costs spent on building the house. These include materials, labor, and depreciation.
- 3. Income
The assessor may also forecast the earning potential of a property when it becomes a rental. The jurisdiction will then use an assessment rate, which can vary according to areas but is a uniform rate. It is below 100%. Note that the assessed value for cost and market value methods may be equal to or a percentage of their actual values. For instance, the house has a market value of $350,000, but the city’s assessment is only 30%. The assessed value is, therefore, $105,000.
Idaho is a tax-friendly state, but it still pays to think about the possible property taxes you have to pay. Work with a real estate team familiar with the state’s taxation such as Sweet Group Realty when shopping for a home there. Contact them now and they can guide you in choosing a property that matches your budget.