Archive for the 'Taxes' Category
Who Pays the Most Taxes in Hartford County?
So who pays the most taxes in Greater Hartford? It’s not as easy to figure out as it might seem. All the talk of revaluations, budgets, and referendums got us thinking about how we could get at that question using the real estate data in the MLS.
We decided to look at all the single family home sales in Hartford County that were input using the Grand List 2009 mill rates. The initial data set had just over 4,000 closed MLS transactions (deemed reliable but not guaranteed) with listing dates between July 1, 2009 and June 19, 2010, which should have been input using the Grand List 2009 mill rates. After eliminating deals with missing data, we ended up with just over 3,800 data points spread across 29 towns.
Next we did some simple calculations and took the median values for everything. Ideally all of this data would have been published in a sortable table embedded in the post, but we couldn’t get it to work right (feel free to send tips or hints). Instead you’re getting the same large table sorted in different ways … our apologies in advance.
The first sort is based on the dollar amount of taxes paid – who wrote the largest checks?
Residents of the more expensive towns wrote the largest checks. Since the values of their homes are the highest, the tax bill – even at a lower tax rate – will he higher.
What if adjust for the home prices? Who pays the highest percentage of their home’s value as taxes each year?
With this adjustment, some towns with low median sales prices have moved to the top of the list, though some of the higher median sales price towns are also paying more than 2% of their home’s value in taxes each year.
Finally, we could adjust for home size to see who pays the most taxes per square foot of house…
This time we see towns with smaller homes and higher median sales prices leading the pack. The results should be very similar to a sales price per square foot calculation. People end up paying the highest taxes per square foot in towns where they also pay the highest purchase prices per square foot.
These results show a slightly different result that simply looking at the mill rates, though the mill rates are helpful as a quick first estimate. Farmington has some of the lowest taxes of the towns with high median sales prices, while Windsor Locks is the least taxed town with low median sales prices.
A Preview of Hartford’s 2011 Revaluation
The 2011 City of Hartford property revaluation is just around the corner, and in fact, the team at the Assessor’s office has already gotten started. Homeowners are scheduled to receive a mailing in the next few months that will help the City collect data about our properties. After that, most of the work will be done internally until the new assessed values are distributed in November of 2011.
Don’t be Afraid
Many property owners hear the word revaluation and instinctively assume that it’s just a cover for raising taxes. It’s not. The point of a revaluation is to collect the funds needed to support the budget in a fair manner. Revaluations have nothing to do with how much the Mayor and City Council plan to spend.
The 2011 revaluation should be a non-event in many ways. The process starts with the Assessor’s office determining the “fair value” for every property in the City — the price at which it would sell in the open market in a fair sale. Since the last revaluation was in 2006, and real estate prices have not changed significantly, most residents should find that their “fair value” will be in the same range, within 25% of last time.
Even though the market hasn’t moved too far, finding the right value for each property will still be a challenge. Some homes will have lost value since 2006, while others will have gained. Improvements play a role in the recalibration, as do market trends. The City will do their best to be consistent and fair to everyone throughout the process.
Not a Repeat of the 2006 Revaluation
The revaluation in 2006 was very stressful for homeowners. Prices had increased dramatically since the previous revaluation and people were scared that their property taxes would also jump by a huge amount. The notice letters stated that owners shouldn’t try to calculate their actual tax bill based on the new fair value, however, the City did little else to reduce the uncertainty as to just how much we would be paying in the future.
As a specific example, our “fair value” increased by over 268% in the first letter we received, to a value that was far more than our home was worth. We chose to challenge our new value and, after making our case to the Assessor’s office, were pleased to receive notice that our new fair value would only be 244% more than before. This was more in line with everyone else’s increase, and resulted in a more reasonable market value. We found the Assessor’s office to be helpful throughout the process.
Because there was such a large jump in fair values, and because different properties appreciated at different rates, the City decided to phase in the new values over a five year period. Every property’s fair value has been increasing in equal steps so that by Grand List 2010 the new fair value will be in place. The phase in seemed to have two primary goals; easing people’s fears about the revaluation process, and providing relief for the owners who’s property had appreciated well more than the average and were facing much higher taxes.
If the fair value phase in wasn’t complicated enough, the City also chose to phase out a surcharge on non-residential property by changing the assessment ratio each year. Hartford property taxes have been uniquely difficult to calculate with these two processes happening simultaneously.
What’s Coming in 2011
After all the confusion from the previous go-round, the next revaluation will be a piece of cake. At least that’s the plan. All properties will use the same assessment ratio — back to 70% like the rest of the state. The mill rate should fall to make up for the increasing assessment ratio, making Hartford taxes much easier to calculate, and to compare to those of other towns. The lower mill rate will reduce the taxes on personal property, which includes cars and equipment owned by businesses.
The revaluation will proceed according to the following schedule, which is available in a helpful pamphlet on the Assessor’s website:
May 2010 – Sep 2010: Data mailers to residential property owners
Oct 2010 – Sep 2011: Sales data collection & verification
Oct 1, 2011: Effective date of Revaluation
Nov 2011: Notices of new values mailed
Nov 2011 – Dec 2011: Informal hearings to discuss new values
Jan 2012: Results of informal hearings mailed
Jan 2012 – Apr 2012: Formal appeals process
May 2012: City Council adopts new budget and sets mill rate
Jun 2012: Property taxes reflect new assessment
The most important part of the revaluation is the Informal Hearings process at the end of 2011. This is the time when individual homeowners have a chance to sit down with someone from the Assessor’s office to learn more about why their fair value is so high.
By making a reasonable argument, and supporting the argument with data, it is possible to get the fair value lowered. Our experience was that bringing relevant data was critical, that they were open to considering qualitative factors their data did not capture, and that their goal really was to end up with a result that is fair to all property owners in the City.
For More Information
The best place to learn about Hartford revaluations is on the Assessor website. They have a piece about how the 2006 revaluation was implemented and a pamphlet answering common questions about the upcoming 2011 revaluation.
After the initial data mailer that we should be receiving soon, there won’t be much to do between now and November 2011 when we receive our new fair values. We’re always happy to answer questions, and when the time comes, help gather relevant data for an informal hearing.
Change to Tax Exclusion on Sale of Primary Residence
The Housing and Economic Recovery Act of 2008 changed the tax rules around the sale of primary residences in a way that has not been widely discussed. Homeowners may no longer be able to claim a full $250,000 (or $500,000 for married filing jointly) capital gains exclusion for a primary residence despite living there for 2 of the past 5 years.
The new rules, which went into effect at the beginning of 2009, still use the 5 year look-back period. They also retain the exclusion limits of $250,000 and $500,000. However, sellers now need to scale the exclusion by the percentage of time that the property served as their primary residence over the past 5 years. A quick example is the easiest way to illustrate the change. Suppose an owner lived in a property for 2 years, then rented it out for 3, and is now looking to sell. Because they lived there for 2 of the previous 5 years, they would be eligible for 40% of the credit. Under the previous code, they would have qualified for the whole thing.
Like all laws, this can get complicated quickly. And portions could be open to interpretation. So, investors and second home owners planning to take advantage of this gains tax exclusion need to consult with their people (accountants and/or attorneys) to make sure that they are on track to achieve their real estate goals.
For Your Further Reading Enjoyment:
The Housing and Economic Recovery Act of 2008 (refer to Section 3092 near the end)
IRS Section 121 Code
Solar Power for Connecticut
Last evening I attended a seminar on residential solar systems presented by Alteris Renewables, a firm that specializes in integration and installation of renewable energy systems. This particular talk was focused on photovoltaic solar systems and the associated Connecticut state assistance program.
The earth receives huge amounts of energy every year in the form of sunlight. Photovoltaic solar systems are able to capture some of that energy and convert it directly into electricity. Homeowners can deploy systems that connect to the power grid, so that during sunny times they deliver power to the utility companies, and during non-sunny times they draw power from the grid. Photovoltaic technology has advanced to the point where a homeowner is able to generate enough power (on an average basis over the year) to offset all of their electricity usage.
One of the negatives of alternative energy is the substantial up-front investment. If an individual were to install a photovoltaic system sufficient to generate 100% of their electricity needs, then the base price for the equipment and installation would be well into five figures. One large system that was used as an example in the presentation cost over $70,000. Which is more than most of us have laying around these days.
To encourage investment in systems like these, Connecticut has put a program in place to help homeowners overcome the initial cost. CT Solar Lease is a program that combines rebates from the Connecticut Clean Energy Fund and leases from CT Solar Leasing, LLC to install systems with no down payments for the homeowner. Instead homeowners commit to a 15 year lease with fixed payments. In theory the payments will initially be comparable to their monthly power bill and will stay constant as the price of electricity increases over time. After the 15 years the homeowner has the option to extend the lease for 5 years at a considerably lower rate, buy the system at its current market value, or pay the un-installation expenses.
When buying through the CT Solar Lease program, the homeowner that installed the $70,000+ system mentioned above did not pay anything for installation and set-up. The rebate from the state covered over half of the cost and the lease made up the difference. He has monthly payments of about $160 for 15 years and then projected monthly payments of about $35 per month if he chooses to extend the lease through year 20. He has effectively locked in his power costs for the life of the lease. Beyond that, he will have the opportunity to buy a power-generating asset for an undetermined one-time cost and then receive the electricity for free for the remainder of the system’s useful life (estimated to be 35 years). If electricity prices continue to increase on an annual basis, then he will save himself a considerable amount of money over time.
With the financial burden of solar substantially reduced, the next major challenge is identifying an appropriate site. Photovoltaic cells are ideally positioned facing south and never in the shade. However the reality is that there are very few perfect sites, so this is where the professionals from Alteris enter the picture. They have experience siting and installing photovoltaic systems and are willing to do initial site and financial analysis for free.
Some other interesting tidbits about solar:
1. Connecticut’s environment is not dramatically worse than Arizona’s for generating solar power – we have more cloudy days, but the systems are more efficient in our cooler climate.
2. CT state law prohibits solar improvements from increasing a property’s assessed value, and therefore taxes.
3. A 2007 report in the Appraisal Journal of the National Appraiser’s Association found that home values increase by $20 for every $1 in energy savings, which suggests that investments in solar systems would have a 95% payback based on current technologies and costs.
4. If you generate more power than you use in a year, then CL+P will cut you a check.
5. Photovoltaic systems connected to the grid must turn off (for safety reasons) if the grid goes down – they are not a backup power source for power outages.
If you are serious about investigating solar, send me an email and I would be happy to pass on the local expert’s contact information (didn’t have a chance to ask for his permission to post it).
Leaving West Hartford?
Yesterday the weather was perfect for a winter open house. Pretty much a spring day in February. My sellers in the West End of Hartford had some good traffic come through their homes, with lots of people seriously looking.
I had some good conversations with the various buyers and I noticed an interesting trend emerging. Of the 23 groups of people that visited my open house, 8 were from West Hartford. Every one of them indicated that they are upset with the high taxes in West Hartford and are looking to relocate to the West End of Hartford because they can get more house for the money and enjoy lower taxes. The buyers were families with children in the West Hartford public schools and Hartford magnet schools, families with children in private schools, familes with children not yet old enough to be in school, young couples, and a retiree.
A few of the families mentioned that they’re rapidly outgrowing their current West Hartford homes but both the housing prices and subsequent taxes associated with a “move up” home made the monthly housing payments financially unaffordable to them. So they’re starting to explore Hartford because they realize they can get a lot more for their money. The average price per square foot in West Hartford last year was $175/square foot, versus $127/square foot in the West End of Hartford. Taxes can also be significantly different. For example, the $5,500 annual taxes on my 3,200 square foot West End home would run me anywhere from approximately $8,000 to $10,000 on a comparable home in West Hartford.
There always seems to be a lot of debate about budgets in West Hartford, perhaps this is some early evidence of people voting with their feet. Thoughts?