Income Tax – Explanation and Guide to Tax

Income tax can be confusing. What is it, why is it divided so confusingly, how much do I have to pay? Are all things that only make sense once you’ve taken a look behind the curtain to understand what your tax calculator is actually telling you. We’ve compiled this simple guide which helps you learn everything you need about your income tax. Income tax is probably the most important tax, as you pay it when you file capital gains taxes and dividends taxes as well!

Income Tax – Definition and Basics

Income tax means that people or corporations have to pay a certain amount of money to the government based on how much money they make. In other words, income tax is levied on individuals and corporations in return for generating income. This is a form of payment for the government in return for doing business within the jurisdiction, and are typically used to fund public services such as cleaning or education and to pay for goods or welfare which the government offers its citizens.

• Tax on individuals and corporations for generating income

How can I Calculate my Income Tax? USA Calculation, Simple Explanation

To calculate your income tax, you first need to find out what your taxable income is. This can differ from your actual income if you have used tax deductions, or paid advance taxes. Once you know what your taxable income is, you must find out the income tax bracket which you belong to. Once you know this, you must calculate that you will pay a part of your income in the first, second, third, etc. tax bracket. If you earn between $86.376 and $164.925, you will pay the firsts $9.950 in the first tax bracket (10%), the next $40.525 in the second tax bracket (12%), etc. until you have counted your whole income.

1. Find out what your taxable income is
2. Find your tax rate via the tax bracket
3. Add up different tax rates until your income is counted fully

Important here are two things, the tax bracket which you belong to, and whether you are filing alone, with a partner, or as head of household. Next, you multiply the tax rate (i.e. the percentage divided by 100) by your total income. Repeat this for the various jurisdictions for which you have to pay income tax (local/municipal, state, federal)

• Single
• Jointly
• Head of household

Explanation – What is an Example of Income Tax?

Let’s take Jane, who works as a secretary for a big company in New York. She makes $50.000 a year, in other words, her income is $50.000. In New York State, there are the following tax brackets:

The income tax rate for a single person generating $50.000 of income is 6,33%. Yet, she pays 4% income tax on the first $8.500, 4.5% on the next $11.700, etc. To find out how much Jane has to pay, she will have to pay

• $8.500 x 0.0400 = 340
• $11.700 x 0.0450 = 526.5
• $13.900 x 0.0525 = 729,75

At this point Jane will have taxed $34.100, and on the remaining $15.900 she will pay the tax rate of 5,9%

$1.596,25 + ($15.900 x 0,059) = $2.534,35

That means Jane has to pay $2.534,34 to the state of New York. Don’t forget though! New York city also has an income tax, and the federal government also has one. For each of these jurisdictions there is a tax rate which Jane will multiply by her salary to find out how much she has to pay.

What Counts as Income Tax? Types of Taxes using Income

Income tax forms part of multiple forms of taxes. For example, if you buy investment capital, this will typically be taxed under capital gains taxes, but if you have held the capital (e.g. stocks) for less than a year, you do not pay capital gains taxes, but rather income taxes on it. Another example is the dividends tax, where you pay capital gains taxes on dividends, unless they are qualified, at which point you pay the normal income tax rates! Types of taxes to use income tax therefore are

• Capital Gains Taxes
• Dividends Taxes

Which IRS Form to use for Income Tax – 1040, 1040A, or 1040EZ

There are three forms to use when filing income taxes. These are the forms 1040, 1040A, and 1040EZ. They are all relevant to income tax, and therefore all apply to all people. You only need to use one though, and must decide which.

The Different Income Tax Forms – Who can use the 1040EZ?

The 1040EZ can be used by everyone who is filing single (or married and filing jointly) and who has an income below $100.000. It is called the EZ because it is simpler than the other forms. With it you do not file for any tax deductions or itemizations.

What is the Difference between Form 1040 and Form 1040-SR?

When paying income tax, the difference between forms 1040 and 1040-SR is that they look different. The additional items, things you file, etc. are all the same, just that the 1040-SR has a different color scheme. It also includes the standard deduction table. The 1040-SR is typically better for people over the age of 65 or with eyesight issues.

Income Tax Structure – Do Rich People Pay more Taxes?

The structure of taxes are often more complicated than imagined, when you really look at it closely. For one, because they differ across regions, and another is that there are so many jurisdictions and small rules to adhere to. Nonetheless, if you want to know the basics of income taxes, this should tell you what you need to know. THis does not differ for e.g. capital gains taxes, where a similar marginal system is applied.

Who Pays more Taxes, Rich or Poor?

In one word, the answer is: the rich. Consider for a moment Jane, who makes $50.000 a year, and compare her to her boss Martin, who makes $200.000 a year. If both of these individuals pay the same tax rate (6.33%), Jane must pay $3.165 in income tax, and Martin has to pay $12.660. Because he makes more money, he has to pay more income tax. On top of that though, the more money you make, the higher the tax rate will be. This relates to tax brackets, and Martin, who makes $200.000, will be in a higher tax bracket than Jane.

Is it Fair that Rich People Pay More Taxes?

At first it may seem unfair that rich people pay more taxes than others. Yet, this is generally accepted because those making more income generally have less troubles financing their lives, while those who are very poor already can often not afford to pay for basic necessities. Therefore, if a Josh, who has troubles paying the electricity bill pays less taxes than a Martin, who just bought himself a new lamborghini, it is generally accepted as fair.

Tax Brackets Meaning and Explanation – What is an Income Tax Bracket?

If you’re looking at taxes it’s impossible to get around this topic. A tax bracket is necessary when different levels of income pay different rates of income tax. This means that a Jane, who makes $50.000 pays a different rate (i.e. percentage) of tax than a Martin making $200.000 and even a Josh who makes $13.000. On top of this, it will matter whether a person is married, and both individuals are filing their taxes together, or whether they are filing them as separate individuals.

Is Tax Bracket the same as Marginal Tax Rate? What is Marginal Tax Rate and Why is it Important

Tax brackets and marginal tax rates are not the same, but related. A tax bracket is when tax rates are divided based on income. A marginal tax rate is the amount of tax you pay for every dollar increase in your income. Therefore, marginal tax rates are always present in a system using tax brackets, and almost always when you have a marginal tax rate, this will be based on dividing earners into tax brackets based on the amount of their income.

Marginal tax rates are important first and foremost because, like tax brackets, they ensure that those unable to contribute more financially (i.e. low-income households) can keep more of the money which they need desperately, while moving this financial load on to people who usually would not struggle with earning slightly less. Marginal tax rates specifically are useful to define exactly how much tax you are paying because of a higher income. This can be important in e.g. promotion negotiations.

Example – New York City Tax Brackets

What are the different income sales tax rates in New York? Take a look below, with the list telling you the income range and what a single person would have as an income tax rate:

• $0 – $12.000: 3.078%
• $12.001 – $25.000: 3.762%
• $25.001 – $50.000: 3.819%
• $50.000 + : 3.876%

Interested in New York Taxes? Take a look at our article

New York Property Tax

What are the Three Types of Tax? Tax Structure, Progressive Taxing, etc.

It is generally accepted that there are three broad types of taxes. This does not mean there are only three forms, but rather that there are three ways in which taxes can be structured. The three types are progressive, proportional, and regressive.

1. Progressive
2. Proportional
3. Regressive

Progressive Tax Rate – Rich People pay more Taxes

A progressive tax is when people who are poorer have a lower tax rate, than those who are richer. In other words, the tax rate progresses with increasing income. In most states, income tax is done this way, meaning that the rich pay a higher percentage of their income.

• Progressive – More income = higher tax rate

Proportional Tax Rate – Everyone Pays the Same

Next, the proportional tax rate is when, no matter how much money you make, you pay the same tax rate. In other words, no matter who you are you pay a certain proportion of your taxes. Here, no matter whether you make $10.000.000 or $10.000 a year, you will pay e.g. 6% on income tax.

• Proportional – Same tax rate for everyone

Regressive Tax Rate Explanation – How do Regressive Taxes Work?

Lastly, the regressive tax rate, where those making less money have to pay the same taxes as someone with high income. For example a person buying a car, and they have to pay 10% sales tax. For a person with a very low income, this is proportionately much higher than for someone with a very high income

• Regressive – lower income = paying more taxes

What are Income Tax Rates in USA? How Much to Pay in Marginal Tax

Every State has their individual income tax rates (except for those who do not have income taxes, see below). At the same time there is a federal income tax rate. Therefore, it is important to keep all in mind when thinking about your income tax payments. So, without further ado, below the breakdown of all income tax rates you could need. Below are the tax brackets for USA federal income tax. First these are for single filers, then for married couples filing jointly. Note the calculation above, which means that the income tax rate corresponding to your bracket cannot simply be multiplied by your income.

USA Federal Income Tax Rates – How Much Income Tax do I Have to Pay? Single

Easily explained – This is what you have to pay in income tax at one glance. These are how much to pay in your marginal tax rate. For singles, the amount you have to pay corresponding to your income is as follows: If you earn

• < $9,875 – 10% of taxable income
• < $40,125 – $987.50 and 12% of income >$9,875
• < $85,525 – $4,617.50 and 22% of income >$40,125
• < $163,300 – $14,605.50 and 24% of income > $85,525
• < $207,350 – $33,271.50 and 32% of income > $163,300
• < $518,400 – $47,367.50 and 35% of income > $207,350
• > $518,401 – $156,235 and 37% of income > $518,400

USA Federal Income Tax Rates – How Much Income Tax do I Have to Pay? Filing Jointly

Easily explained – This is what you have to pay in income tax at one glance. These are how much to pay in your marginal tax rate. Filing jointly, the amount you have to pay corresponding to your income is as follows: If you earn

• < $19,750 – 10% of taxable income
• < $80,250 – $1,975 and 12% of income > $19,750
• < $171,050 – $9,235 and 22% of income > $80,250
• < $326,600 – $29,211 and 24% of income > $171,050
• < $414,700 – $66,543 and 32% of income > $326,600
• < $622,050 – $94,735 and 35% of income > $414,700
• > $622,051 – $167,307.50 and 37% of income > $622,050

Tax Special! Capital Gains Tax

Capital gains tax is one of the two sisters of dividends taxes. It is a vital tax to know if you want to invest, and plan on increasing value of capital. Capital gains taxes are among the most important for the welathy, and for good reason. Knowing how to use these to your advantage is critical for multiplying your wealth.

Capital gains tax is a tax on the profit you make with investment in capital assets. If you buy stocks and sell them for more money than you bought them, you have made profit (i.e. capital gains), and this extra money that you are receiving is taxed. If you sell capital for more than you bought it, you will necessarily, by law, pay capital gains tax. Although, it is important to distinguish taxes on capital gains and capital gains taxes. The capital gains tax only applies to long-term capital assets (i.e. owned for longer than a year), while short-term capital assets are taxed as if they were normal income, at the income tax rate like the salary you receive from work. Capital gains tax rates are lower than income tax rates!

USA Capital Gains Taxes

Tax Special! Dividends Tax

Dividends tax also utilize capital gains taxes! Although dividends also carry their whole own addition of complications and confusions. We’ve written another helpful and simple guide to learn everything you need to know about dividends taxes, how they work, when they occur, and of course also how to save money on your dividends taxes. No doubt you’re going to learn something very important in this article.

Dividends taxes are taxes on the dividends which you receive as a shareholder in a company. What are dividends? In a sense they are like the company sharing part of their income with you, as a reward and incentive of being a shareholder in their company.

USA Dividends Tax

Tax Special! Property Tax

As mentioned, taxes on property are nearly as complicated as on income or capital. Property taxes, where they are taxed, what they tax, and how to pay less property taxes, can all be found in our all-encompassing guide on property taxes.

Property tax is often confused as being a tax on real estate property. Yet this is a misconception. The largest proportion of property taxes come from real estate, because this is the most expensive property most people own. Yet property taxes can also be levied on airplanes, computers, furniture, etc. In the U.S., each person pays an average of $1.617 in property taxes a year. The state which pays the most property taxes is New Hampshire with $3.307.

USA Property Taxes

Der Beitrag Income Tax USA – Definition, Explanation, How-to Save Money erschien zuerst auf ℄ Real Estates.

Real Estate – All Taxes you Pay when Buying Real Estate

Buying a house is a massive investment, and most people are surprised by the many additional costs. To begin to understand all the extra costs which the purchase of a house brings, means understanding the taxes. That means, that the three types of taxes listed below are all the necessary costs which you will pay to the government in the area of the home you are purchasing.

Upfront Taxes – What are Pro-Rata Taxes?

When buying a home in the United States, you are typically required to pay 6 months of property taxes in advance upon purchase. That means six months worth of property tax, called pro rata. Yet, on the purchase of the property, there are only three taxes. Which makes this quite easy to understand. The property tax is the tax which an individual has to pay annually for owning property, the transfer tax is the tax on the purchase of the home, and the mortgage recording tax (where it exists) is the tax on the recording of the mortgage.

• Taxes you pay in advance!

Many of these taxes can be deducted from your federal tax sheet. Learn more:

• Real Estate Tax Deductions Explained

Do you have to pay Sales Tax on Real Estate?

No. In federal law, real estate such as homes, property, or land, are not subject to sales tax. Although some states do have sales tax on items which may be interpreted as being a home (e.g. a mobile home).

Taxes You Must Know – Most Important Real Estate Taxes

These are the taxes you have to know about when paying for your home. How each of these is calculated depends on the city, county, and state the real estate is bought in. The three relevant taxes which you will incur when purchasing a home are property taxes, transfer taxes, and mortgage registration tax. Not all exist in all states, and there are many intricacies to note.

Property Taxes – Do You have to Pay Property Tax when Buying a Home?

Property Taxes are ad-valorem taxes which you pay for owning property. Most typically, this property consists of land, as well as anything which is permanently attached, such as any real estate, but also, roads, docks/wharfs, pools, etc. In some states, the property tax even includes items such as boats. When buying a house, these must be paid in advance, and then received back from the seller. Property taxes are typically a rate which is multiplied by the estimated value of the property. This value is estimated by an appraiser, and takes into account location, age, etc.

Avg. US Property Tax: 1.11%

To calculate property taxes, you receive a rate, which is influenced by local, county, and state laws. E.g., a house in Hawaii, worth USD$1 mil., will cost USD$3,000 in property taxes a year. Yet this does not take into account the rate which a specific county in Hawaii may add to this.

• U.S. States Property Taxes

Transfer Taxes – What is it? Who Pays transfer Taxes?

Transfer taxes are argued to be taxes which pay for the work and materials invested when documenting the purchase of a new home. This is why they are sometimes also called documentation taxes. They are one time fees upon the transfer in ownership of a home, i.e. when buying or selling a house. These are sometimes paid by the seller, and sometimes by the buyer, with some states stipulating who, and sometimes the real estate agent mediates between seller and buyer.

• Sometimes paid by seller, sometimes by buyer

Avg. US Transfer Tax: 0.6%

These are often felt to be one of the more complicated taxes because the rate does not only differ by state, but also between counties and between cities. E.g. in New York you have the New York State (0.4%), New York City (1,4%), Mansion (1%, only when buying a house > USD$1 mil.) transfer taxes. Meaning when you buy a house for USD$1 mil., there is a total of USD$28,250.

• U.S. Real Estate Transfer Taxes

Mortgage – What is a Mortgage Registration Tax?

This tax is based on the amount of debt being secured by the procurement of real estate. It is a state-based tax, and is paid towards the locations where the mortgage is documented and recorded. If the buyer wants a mortgage, the buyer pays the registration fees for the mortgage. In Minnesota, there may be an additional tax such as an “environmental response fund tax”. The 7 states which require a mortgage tax are Alabama, Florida, Kansas, Minnesota, New Yoek, Oklahoma, and Tennessee.

Avg. US Mortgage Registration Tax: 0.2%-.4%

The amount required is again based around the amount included in the mortgage. E.g. in Minnesota county, there is a 0.23% mortgage registration tax, when a mortgage worth USD$1 mil., you will pay USD$2300 in mortgage registration tax.

• U.S. Mortgage Taxes

Closing Costs Real Estate – Hidden Additional Costs

These taxes are just some of the many additional costs which accompany the purchase of real estate. Buying a house means paying attorneys, brokers, and many other individuals or organisations. And these additional costs can equal as much as 5-6% of the total purchase price of the property. We’ve broken down all the costs you have to know about in our article

• Buying Real Estate – All Additional Costs

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Mortgage Tax – Taxing your Home Loan

In some U.S. states you are required to pay a tax on closing a mortgage. This is one of the most important closing costs for real estate purchases. For this reason it is a one-time payment when closing the mortgage. There are many names for this, from mortgage recording tax, to just simply mortgage tax. It is the buyer of a home who is required to pay a mortgage tax. Mortgage taxes can also vary within states, counties, and across cities.

Mortgages are complicated. We explain them easily

• Mortgage Explained – Meaning, How-to, Guide

What is a Mortgage Tax

This tax exists to document the transaction which takes place when closing a mortgage. It is constructed of a percentage of the amount of debt being secured as a result of the creation of debt. It is a state-based tax, and is paid towards the locations where the mortgage is documented and recorded. In Minnesota, there is an additional tax in some counties, the “environmental response fund tax”. The 7 states which require a mortgage tax are Alabama, Florida, Kansas, Minnesota, New York, Oklahoma, and Tennessee.

Mortgage tax is not the same as property taxes, or as mortgage interest.

How is Mortgage Tax Calculated?

Each state has a mortgage tax rate. The mortgage rate is easily calculated by multiplying the rate in the location of the property (make sure to take into account state and county regulations!) by the amount which is in the mortgage. Also, make sure to take into account that mortgage taxes are rounded up.

E.g. in New York State, there is a mortgage tax rate of 1.05%. That means closing a mortgage in New York costs USD$7.500, given the rate of 1.05% and a mortgage worth USD$500.000.

Mortgage Tax Payment = Mortgage Tax Rate x Total Mortgage Amount

It is possible to reduce the mortgage tax by “assignment transferring”. In a nutshell, the loanee takes the assignment of loaning the mortgage to a new company, here the original tax is transferred, and therefore does not have to be paid.

Want to find out more about saving on your real estate tax bill?

• Real Estate Tax Deductions USA – How to Save

List – Mortgage Taxes by State

There are seven states which require a mortgage tax. These may be called different names, but are all the same construct.

New York

• Name: Mortgage Tax
• Rate: 1.05%
• Exemption: Possibility of $30 if the relevant “property is, or will be, improved by a one or two family dwelling.”

Alabama

• Name: Mortgage Tax
• Rate: 0.15% (.15 per $100, total mortgage amount rounded up to the next highest $100.00)

Oklahoma

• Name: Mortgage Tax
• Rate: 0.10% (+ $5 certification fee)

Minnesota

• Name: Mortgage Registry Tax
• Rate: 0.24% (+ 0.01% Environmental Response Fund Tax in Hennepin and Ramsey Counties)
• Exemptions include contracts for deed, certain agricultural mortgages, marriage dissolution decrees, and certain low- and moderate-income housing mortgages.

An oceanside house surrounded by palms and beach in Florida.

Florida

• Name: Documentary Stamp Tax
• Rate: 0.35%
• Late penalty: 10% + increasing monthly interest rate

Tennessee

• Name: Mortgage Tax (part of “recordation tax” which includes realty transfer tax)
• Rate: 0.115% (does not apply to the first $2.000 of the debt)

Kansas (Until 2019)

• Name: Mortgage Registration Tax
• Rate: 0.26%
• Since 2019, you no longer pay mortgage registration tax in Kansas

Der Beitrag Mortgage Tax – Everything to know Explained, Tips, How-to, More erschien zuerst auf ℄ Real Estates.

Saving Taxes on Real Estate Investment

Most people spend too much on taxes on their real estate. It’s not difficult to reduce your tax bill. Unless you plan to move abroad to a tax haven, and pay not taxes at all, it’s critical to understand the tax incentives in the USA. There’s many tax deductions you can apply, which reduce the financial loss on your tax bill. Owning real estate in the US is supported by the government, and therefore incentivized by taxes. Make sure to read the fine print though, as each state has its own tax structures and systems. In general, the following rules apply.

What taxes do you have to pay buying a home? Our article:

• All Taxes when Buying Real Estate

Tax Credit, Tax Deduction? What does it Mean?

It is important to distinguish tax credits and tax deductions, as well as non-refundable and refundable tax credits.

When you invest, you pay less in taxes, which is called tax credits. Refundable tax credits are money which you are entitled to no matter how large your tax bill, meaning if you get an $8.000 refundable tax credit, and only have a $5.000 tax bill, you will receive $3.000. A non-refundable tax credit only reduces the amount you have to pay in taxes, so you would not be entitle to the extra $3.000.

Tax Credits: Receiving money because of investments

A tax deduction on the other hand, applies to the income which you are required to tax. For example, if your income is at $100.000, but you receive a $20.000 tax deduction, the income which you are taxed for becomes $80.000.

Tax Deduction: Lowering the amount of income which is taxed

Realty Tax Tip #1: Reevaluate your Property

Most of the taxes you will pay on your property are property taxes. Property taxes are fixed rates which apply to the estimated value of your home or property. This value is often dependent on the buying price, yet typically this price will be increased by 2% to account for inflation by the county authorities. In some cases, for example, after renovations or natural disasters, the value can be re-estimated by an assessor. Therefore, it is possible to appeal the assessment of an appreciator.

Property Tax Special! How to Write off Property Tax!

It’s possible to pay up to $10.000 less property tax if you do it right! You just need to follow the steps and deduct the right things from your bill. You can deduct the property taxes from everythign from land to boats and more! Just read our quick article on the topic!

Write off Property Tax

Mortgage – Deductions or Credit?

When you invest in a home, you will likely open a mortgage. In short, a mortgage is a “secured” loan where you offer your real estate as collateral in case you are unable to pay back the money loaned.

Mortgage is much bigger and more important that the information we have in this article, so continue to

• Mortgage Explained – Easy, How-to Guide, More

Mortgage Interest Credit

The government intends to support those who have to pay back loans. For this reason, when paying mortgage, you may be entitled to tax credit in proportion to the amount you pay in mortgage. You apply for a so-called mortgage credit certificate. A mortgage credit certificate is documentation to prove that you pay mortgage, and that you are eligible for this tax credit. The credit is limited to $2.000.

Mortgage Interest Deduction

Not to be confused with its brother, mortgage interest credit, this tax deduction is based on the interest you pay on a loan which is secured by your first or second residence. To qualify, you are required to have a qualified (meaning meeting specific requirements, e.g. ability to pay back, not an excess of x% debt, etc.) mortgage which on a home you own. Most people can deduct 100% of the interest which they pay on their mortgage, up to $750.000. To file for this deduction, you will need to file using the form 1040, found on the IRS website (Download).

• Deduct 100% of interest up to $750.000

For a full run-through of mortgage interest and where to save how, our article has you covered

• Mortgage Interest – Explanation, Calculation + More

Deducting State and Local Property Tax (SALT)

It is possible to itemize state and local taxes on your federal tax bill. That means that you can deduct your state, county, and local property taxes from your federal tax bill. The single item deduction for state and local taxes paid is limited to $10.000 per tax return for single submitters, heads of household, and married taxpayers filing jointly. For married taxpayers filing separately, the cap is $5.000. This is possible regardless of whether you pay directly, or via an escrow account.

• Limit of $10.000 for single submitters
• Limit of $5.000 for married submitters each

Local Tax Breaks

As mentioned before, due to the US’ complicated tax systems with individualized tax structures for individual states, counties, and municipalities, you are likely entitled to many more tax breaks. For example, in California local tax breaks for real estate are included on a property if it is your main place of residence, for veterans, senior citizens, etc. Another example is the Homestead exemption, where some states reduce the taxable portion of your property’s value if it is your primary residence.

Real Estate Taxes – How to Save

Saving on your tax bill is the number one way to reduce costs as a home owner or prroperty investor. There are fewer easier methods to make money or reduce costs, than to simply receive them from institutions to which you pay bills. Be it receiving money directly from the government, or just paying less, it’s an important part of any knowledgable investor and homeowner.

Der Beitrag Real Estate Tax Deductions – How-to Save Money, Easy Explanation + Guide erschien zuerst auf ℄ Real Estates.

Paying Because I Own Something!?

Property taxes are levied on land, buildings and for example a boat or lift. Property taxes are a fairly broad category. These are generally considered to be too low by the academic community, and there have been increased calls to increase property taxes, as they are an equitable, and non-damaging form of revenue for the government. Property taxes are levied once a year, as with other taxes, on the 15th of April.

Property taxes also have to be paid in advance when buying real estate. Learn more:

• All Taxes When Buying Real Estate

Property Taxes When Buying or Selling a Home

As property is rarely sold on the day where taxes are recorded, it is often a quite complicated manner to decide who pays what. The IRS will not check who pays the taxes, as long as the required amount is paid. The way this is usually handled is that when a house is sold, the seller, upon purchase, will pay for the entire year in advance. The buyer, then simply hands over his pro rata share. There is such thing as a transfer tax though, which should not be disregarded.

What Items are Taxed in Property Tax?

Property tax is often confused as being a tax on real estate property. Yet this is a misconception. The largest proportion of property taxes come from real estate, because this is the most expensive property most people own. Yet property taxes can also be levied on airplanes, computers, furniture, etc. Additionally, property taxes do not only consist of the house or building itself, but also the land, and any other item which is permanently attached. This means that wharves for example are also taxed in the property tax.

How much is Property Tax?

Property taxes are considered ad valorem taxes, meaning that it is based on the monetary value which is estimated to be attached to an item, piece of land, property, etc. The property appraiser provides the basis for calculation. This is based on the estimate of how much it would be to purchase this item in that year, which is oriented on the market value, location, condition, area, etc.

Usually there is a tax rate for the specific location which is influenced by local, state, and federal laws. This tax rate is multiplied by the assessed cost or value of the property. For example, paying for a piece of land which is worth $100.000 in California, where the property tax rate is 0.77%, you pay $770 to the tax authority.

In California, property worth $100.000 = $770 property taxes

Due to many different forms of tax structures, there are many factors which come into play depending on where the taxed item is located. This is why, when comparing tax rates, the “effective tax rate” is used, which takes into account factors which come into play for normal items.

U.S. Citizens Pay What?

In the U.S., each person pays $1.617 in property taxes a year. The state which pays the most property taxes is New Hampshire with $3.307. Meaning that the average person in New Hampshire pays $3.307 in property taxes a year. The state where people pay the least property taxes is Alabama. In Alabama, the average person pays $582 in property taxes.

• On average, Americans pay $1.617 in property taxes a year

Property Taxes Country Comparison

Different countries differ in their property taxes. With some countries requiring very little, and others a lot. Worldwide though, experts agree that in general property taxes are too low and the tax rates should be increased in developed countries.

Meaning that this takes into account the strength of the economy, and how much the property tax is compared to this economic strength.

Interested in Real Estate Taxes? Read our Article

• All Real Estate Taxes Explained

Does the U.S. have a High Property Tax Rate?

No. The effective property tax rate in the U.S. is 1.11%, lower than in most other developed countries. Again, this number is difficult to compare to taxes from other countries, as other coountries use different systems, and therefore, e.g. tax land and real estate separately. E.g. in France, where property taxes are 21.88%, called la Taxe Foncière. Yet this 21.88% is a percentage of half of the possible rental value, and there is an additional Taxe Habitation which individuals pay to live on the property.

Nonetheless, the property tax in the U.S. is quite low. In comparison, these are the rates in other countries:

• Germany: 0.26%-1.00%
• U.K.: 0%-5%
• Mexico: 6.5%
• Belgium: 1.25%-2.5%

Property Tax Rates by State

All states have a property tax. All states differ in what the average effective property tax rate is, how this is calculated, and what other factors come into play. On average, the cheapest property tax rate is found in Hawaii, with 0.30%. That means for an item of $100.000, you pay just $300 in property tax. This is just 70% less than the average U.S. state. California has a property tax rate of 0.74%, also low compared to the national average. Meanwhile, property tax on a house in Florida is $9.400 given its tax rate of 0.94% and a house worth $1 mio.

Lowest property tax rates: Hawaii, Alabama, Louisiana

Highest property tax rates: New Jersey, Illinois, New Hampshire

California – Destination Celebrity

California is a dream destination. For people from all over the world it represents the American dream, beach lifestyle, bathing in the sun with a cocktail in hand. Home to Hollywood, but also Silicon Valley, this is a state where things are happening. In Los Angeles County, the median property tax is comparatively low, slightly higher in Orange County, with San Diego County the lowest tax rate of the largest counties. Average property tax rate in California is at 0.74%.

• Property Tax Rate: 0.74%

In California, it is important to distinguish real property and personal property. Personal property is taxed differently than real property, and can be exempt from taxation, or have a different type of taxation.

Full Article: Property Tax How-To – California

Florida – Investment in the Sunshine State

Florida’s property taxes are considered quite high, yet they fall below the average for the USA, at 0.94%. In Florida, the majority of property tax are used for citizen support measures such as protective services, first responders and law enforcement. Other agencies include payment of other municipal employees, citizen services like garbage collection, and recreational services. Property taxes in Florida only apply to real estate.

• Property Tax Rate: 0.94%

The number one way to save money on property taxes in Florida is via the homestead exemption. This is a way to save up to $50.000 on the appraised value of a home.

Full Article: Property Tax How-To – Florida

New York – Penthouse or Villa?

New York’s property taxes are some of the highest in the country. With the top 5 highest property tax rates in the USA, finding home in New York State. This, despite New York City’s five boroughs having an average property tax rate 0.86%.

• Property Tax Rate: 1.40%

In New York State, property taxes change from year to year, depending on the needs of the state. Additionally, it is also complicated by the fact that tax rates are constructed in millage rates as opposed to tax rates.

Full Article: Property Tax How-To – New York

Property Tax Special! How to Write off Property Tax!

It’s possible to pay up to $10.000 less property tax if you do it right! You just need to follow the steps and deduct the right things from your bill. You can deduct the property taxes from everythign from land to boats and more! Just read our quick article on the topic!

Write off Property Tax

Property Tax List by State

These are the effective property tax rates per U.S. State in alphabetical order.

• Alabama 0.40%
• Alaska 1.02%
• Arizona 0.67%
• Arkansas 0.64%
• California 0.74%
• Colorado 0.56%
• Connecticut 1.70%
• Delaware 0.58%
• Florida 0.94%
• Georgia 0.92%
• Hawaii 0.30%
• Idaho 0.75%
• Illinois 2.05%
• Indiana 0.87%
• Iowa 1.50%
• Kansas 1.33%
• Kentucky 0.82%
• Louisiana 0.52%
• Maine 1.27%
• Maryland 1.04%
• Massachusetts 1.15%
• Michigan 1.44%
• Minnesota 1.11%
• Mississippi 0.65%
• Missouri 1.01%
• Montana 0.76%
• Nebraska 1.65%
• Nevada 0.66%
• New Hampshire 2.03%
• New Jersey 2.21%
• New Mexico 0.68%
• New York 1.40%
• North Carolina 0.85%
• North Dakota 0.95%
• Ohio 1.62%
• Oklahoma 0.88%
• Oregon 0.98%
• Philadelphia 1.51%
• Rhode Island 1.53%
• South Carolina 0.56%
• South Dakota 1.22%
• Tennessee 0.73%
• Texas 1.69%
• Utah 0.62%
• Vermont 1.80%
• Virginia 0.86%
• Washington 0.92%
• West Virginia 0.55%
• Wisconsin 1.73%
• Wyoming 0.55%
• Washington D.C. 0.59%

Property Taxes – Incredibly Important

Property taxes are a vital part of any homeowners tax bill. To understand and effectively work with this type of tax is extremely important. They are incredibly difficult to understand, thanks to the many varied types of property tax structures, and differences between states in what is included in the property tax. The comparison between these states should spell out clearly, what a high property tax rate is, and where the highest rates are.

Der Beitrag Property Taxes in the U.S. – Real Estate Tax Rates Explained, List by State erschien zuerst auf ℄ Real Estates.