PROPERTY TAXES

Taxes imposed on land and the buildings are the major source of revenue for local governments.

They are not imposed by states but by the tens of thousands of cities, townships, counties, school districts and other assessing jurisdictions. This revenue generated by Property tax is used to enhance the living conditions and lifestyle in the society.
The state's role is to specify the maximum rate on the market value of the property, or a percentage of it, as the legal standard for the local assessors to follow. The local assessor determines the value to be taxed. No one can escape property taxes in any state, but the tax rates vary from state to state.
Most states give residents over a certain age (senior citizens) a break on their property taxes. With some taxes, you'll need a relatively low income to qualify. Forty states provide either property tax credits or homestead exemptions that limit the value of assessed property subject to tax.
There may be other tax breaks available, depending on where one resides. All 50 states offer some type of property tax relief program, such as freezes that will lock in the assessed value of your property once you reach a certain age, or deferral of taxes until the homeowner moves or dies. They ultimately have to be paid. In addition, counties and municipalities often have their own property tax relief plans.
Retirees with low incomes and high housing costs may face property tax bills that are higher than they can manage. Some states target property tax relief to those homeowners bearing the greatest burden. Property tax reforms takes into account a homeowner's ability to pay, such as a so-called "property tax circuit breaker," can better protect low-income homeowners from rising property taxes that accompany rising property values. Targeted property tax relief avoids sharp reductions in funding for locally provided public services and inequities based solely on date of purchase.

Property Tax Circuit Braker



*A property tax circuit breaker prevents property taxes from "overloading" a taxpayer. Under a typical circuit breaker, the state sets a maximum percentage of income that an eligible family can be expected to pay in property taxes. If property taxes exceed this limit, the state then provides a rebate or credit to the taxpayer.


*Currently, amidst the 31 states and the District of Columbia with circuit breakers for homeowners, only six and the District of Columbia permit all households to participate in the program without regard to age.

Other property tax relief strategies that may be used to target property tax relief include homestead exemptions which exempt a certain amount of a home's value from taxation, credits to rebate a certain percentage of taxes paid, and deferral programs to allow low-income elderly homeowners to be delayed the payment of property taxes until property is sold out.

State Tax Burden



A state with a lower burden is a more attractive place to retire in comparison to one with a higher burden. To get a true sense of which state is less expensive, a look at state and local tax burdens is essential, in order to visibly locate the low tax states.
It is estimated by the Tax Foundation that the nation as a whole will pay on average 9.7% of its income in state and local taxes in 2008, down from 9.9% in 2007 primarily because income grew faster than tax collections between 2007 and 2008. This is the latest report the Tax Foundation has issued. New Jersey residents paid 11.8%, topping the charts. New Yorkers were close to paying 11.7%, and Connecticut was third at 11.1%. The top 10 were approximated by Maryland (10.8%), Hawaii (10.6%), California (10.5%), Ohio (10.4%). Vermont (10.3%), Wisconsin (10.2%) and Rhode Island (10.2%).
Alaskans pay the least, 6.4 percent in 2008, whereas Nevada is close at 6.6 percent. In four states the residents pay between 7 and 8 percent of their income in state and local taxes: Wyoming (7.0%), Florida (7.4%), New Hampshire (7.6%) and South Dakota (7.9%). Four other states round out the bottom 10: Tennessee (8.3%), Texas (8.4%), Louisiana (8.4%) and Arizona (8.5%).

Inheritance Tax



This is known as the tax made on the section of an estate, which is received by an individual. It differs from an estate tax which is a tax levied on an entire estate before it is distributed to individuals. It is strictly a state tax. Eleven states still collect an inheritance tax. They are: Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. In all states, transfers of assets to a spouse are exempted from the tax. In some states, transfers to children and close relatives are not levied.

In 2010 estate and generation skipping (GST) taxes were repealed and the gift tax rate is equal to the highest income tax rate of 35%. Assuming Congress does not change the law on Jan. 1, 2011, the estate, GST and gift tax laws that existed on Jan. 1, 2001 will be re-established. The estate and gift tax exemptions would be reunified again at $1 million and the GST exemption would be $1 million, indexed for inflation.

The estate and gift tax rates would range from 39% to 55% depending on the taxable gift or estate with taxable transfers in excess of $3 million taxed at the top rate. For taxable transfers between $10 million and $17,184,000, there would be a 5% additional tax imposed to bring the tax to 60%. In 2011 the GST tax rate would be 55%, the highest estate tax rate.

Most of the states, framed estate and inheritance taxes in such a manner that states face either a full or partial loss of estate tax revenues as this credit are phased out. States can avert this loss of revenue by "decoupling." Decoupling means protecting the relevant parts of their tax code from the changes in the federal tax code, in most cases by remaining linked to federal law as it existed prior to the change. Seventeen states and the District of Columbia have retained their estate taxes after the federal changes. Of these, 15 states -- Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Vermont, Virginia, and Wisconsin -- and the District of Columbia decoupled from the federal changes. Two states -- Nebraska and Washington -- retained their tax by enacting similar but separate estate taxes.