Taxes on new house question

[thinkerbell]

I have googled and can’t find anything on our situation. Hopefully someone on here has done this before. We will be buying a new townhome, hopefully soon. We will be buying it before selling ours. Right now, we are not in city limits so we only pay county taxes at the 4% rate (primary residence). When we move, we will be in the city limits in a different county. Taxes are over three times as much as what we pay now but will be even more, way more, if it is considered our second residence. Is there a way to make the home we are in now our second home so the one we are moving to will be our primary residence at the 4% rate? We will be selling fairly quickly, as soon as we can get new flooring and walls painted and don’t want to pay many thousands of dollars in taxes on the new residence.

 

[kdonnel]

In my area you can only claim homestead on a single home at a time and it should be on the home you actually live in. I think what you are describing is something similar but for where you live.

So here it would be a matter of applying for homestead during the appropriate time, for here that is January-April I believe, and when the tax bill shows up in September/October it would reflect homestead on the main residence and regular on the second property.

This would be a perfect question for your realtor.

 

[china mom]

It sounds like a moot point since you are selling your the home. How can you claim the homestead tax credit (and why would you) for a house you don't own?

Or are you talking about income tax, not property taxes?

 

[Robbie Cottam]

Your primary residence is whatever you declare it to be.
The easiest way I know to declare it is to change your license.

But since these laws change from state to state, that information might be helpful.

 

[Luv Bunnies]

Definitely ask your realtor how or if this could work. Some states/counties have programs that allow you to transfer your old tax basis to a new home. For example, California has a program that allows people over 55 to downsize without being hit with increased property taxes.

It seems to me that if you own two homes, you'll pay taxes for each one based on the tax rate in each area. If you sell one, you'll pay whatever the tax rate is for the remaining one. But again, ask your agent if there are any programs in your area that might help you.

 

[tvguy]

Definitely ask your realtor how or if this could work. Some states/counties have programs that allow you to transfer your old tax basis to a new home. For example, California has a program that allows people over 55 to downsize without being hit with increased property taxes.

It seems to me that if you own two homes, you'll pay taxes for each one based on the tax rate in each area. If you sell one, you'll pay whatever the tax rate is for the remaining one. But again, ask your agent if there are any programs in your area that might help you.

California is a strange animal on property taxes. Property taxes are limited to 1% of what you paid for the house. That tax amount can go up by no more than 2% a year. And voters can add assessments/bonds, but only if 2/3 of the voters approve them.
Senior citizens were the primary reason voters set the 1% cap on property taxes back in 1978 when whey passed Proposition 13. I remember interviewing long time homeowners back in 1978 and some had property taxes that were more than they paid for their house!

 

[china mom]

It seems to me that if you own two homes, you'll pay taxes for each one based on the tax rate in each area. If you sell one, you'll pay whatever the tax rate is for the remaining one. But again, ask your agent if there are any programs in your area that might help you.

That is how it works for me. Tax rate x value = property taxes. I have a less expensive (rental) house in a county with a higher tax rate and I pay much more in property taxes than my more expensive primary residence in a lower tax rate area.

I was able to file for the homestead tax credit for my primary residence once I had lived in it for six months. But I could not claim it on a house that I either sold or rented out. So, depending on the time of year the property taxes are due in relation to the timing of your home purchase, you could have a year where you are ineligible to claim it.

 

[starry_solo]

I have googled and can’t find anything on our situation. Hopefully someone on here has done this before. We will be buying a new townhome, hopefully soon. We will be buying it before selling ours. Right now, we are not in city limits so we only pay county taxes at the 4% rate (primary residence). When we move, we will be in the city limits in a different county. Taxes are over three times as much as what we pay now but will be even more, way more, if it is considered our second residence. Is there a way to make the home we are in now our second home so the one we are moving to will be our primary residence at the 4% rate? We will be selling fairly quickly, as soon as we can get new flooring and walls painted and don’t want to pay many thousands of dollars in taxes on the new residence.

Unlikely because the tax rate is established based on the location of the home, not the purchase price.
What someone mentioned about CA seniors is that the base value of the home can transfer to a new primary residence, but the tax rate itself does not.

You may be able to do a 501 exchange to defer capital gains taxes, but consult a professional about that.

 

[amcnj]

Would changing voter registration, driver’s license etc to the new address help make it official that it is your main address/home?

I guess someone at the town or county level should know what steps will make it so.

 

[thinkerbell]

Ok. We aren’t at the point of getting a realtor involved quite yet. Just thinking through scenarios. Guess we will wait and ask them. I am talking about property taxes. You can only claim the 4% rate if it is your primary dwelling. When we move to the new house, our old house will still be on the lower rate as our primary residence because it won’t magically change over to our secondary house…or will it??? Wondering if we could go to our current county and ask them to put the current house at the higher rate so that the new house will automatically go to the lower rate as soon as we buy it. As someone mentioned, I do know that the lower rate for primary residence will not start until January if we don’t get it on the new house to begin with, and that is if we sell the old house by the cut off date to apply for the primary residence rate. Seems like it is about a month before the end of the year. We had to do it for my husband’s mom a couple of years ago.
We will just wait and cross that bridge, and ask our realtor, when it gets here.
Side question… will our car taxes go up because we are living in the city limits? Couldn’t find that online either, even searching in the county tax website. TOO MUCH TO THINK ABOUT. Makes me want to throw my hands up and forget about moving altogether but I want to live where my kids are.

 

[tvguy]

What someone mentioned about CA seniors is that the base value of the home can transfer to a new primary residence, but the tax rate itself does not.

The base tax rate is 1% in California. so it doesn't need to transfer, it's the same in every California county.

 

[lanejudy]

If you will move into the townhouse at the time of purchase then it becomes your primary residence. If you will continue living at the old house until it sells, that remains your primary residence until the sale/move.

As to whether the property tax rate in either location can be changed immediately on sale/move may depend on the tax laws in each location. Where I live, the new owner essentially “inherits” the remaining property tax bill from the previous owner. That bill and rate is set for the fiscal year (Aug - July) and homestead cannot be declared until tax filing in April for the tax bill that begins in August.

I suggest you contact a professional — realtor or real estate attorney and/or CPA. Make sure you have someone representing YOU on the purchase transaction.

 

[greeneyedchick]

Here's a step by step guide to making your new home your primary residence before selling your current primary residence.

https://propertyclub.nyc/article/rules-for-converting-a-second-home-to-a-primary-residence

 

[bcla]

Unlikely because the tax rate is established based on the location of the home, not the purchase price.
What someone mentioned about CA seniors is that the base value of the home can transfer to a new primary residence, but the tax rate itself does not.

You may be able to do a 501 exchange to defer capital gains taxes, but consult a professional about that.

California does have a senior base value transfer, but that's based on current market value of the previous home being less than the replacement home, but the transfer value is likely less.

However, Proposition 13 was primarily geared towards protecting long-time homeowners (often seniors) from highly variable property taxes. So if seniors don't sell, they can stay in their homes without massive property tax increases based on reassessments.

When I bought my house (built in 1949 and sold by the original owner) my initial property taxes were really low. The special assessments were more than the ad valorem taxes. I think the assessed value was marked as from 1976 (before Proposition 13) and somewhere around $40,000. I was happy until I got the supplemental tax bill the next year that was based on my purchase price - to cover the difference.

 

[barkley]

When I bought my house (built in 1949 and sold by the original owner) my initial property taxes were really low. The special assessments were more than the ad valorem taxes. I think the assessed value was marked as from 1976 (before Proposition 13) and somewhere around $40,000. I was happy until I got the supplemental tax bill the next year that was based on my purchase price - to cover the difference.

not living in california anymore ( b/c despite my home being assess valued at 325% more than the prop 13 locked value of my home there-i'm still paying less in property taxes than i did there in '06) but folks that buy round us encounter the same situation you mention-when they purchase-any remaining property tax installments within the existing calendar year (paid in april/october) are based on the previous owner's assessment. come around february of the next calendar year the new property tax bill is issued which is based on the most recent assessment (read-if you bought for twice or triple what your neighbors paid over the past decade you and they can thank you for raising taxes).

 

[LuvOrlando]

If you have a partner can one person move ahead of the other so each has a different primary until you reunite after the sale? Maybe the commute is shorter for one than the other and you go back and forth in the meantime? Ony change addresses for one of you, might need to file separately for the 2 addresses.

 

[thinkerbell]

Here's a step by step guide to making your new home your primary residence before selling your current primary residence.

https://propertyclub.nyc/article/rules-for-converting-a-second-home-to-a-primary-residence

Thank you!!

 

[DisneyHardin]

Side question… will our car taxes go up because we are living in the city limits?

I don't know if this is different on a state by state basis, but in Kentucky, your car taxes are a state rate and it doesn't matter where you live in the state, you pay the same amount in car taxes. Your car insurance may change a bit once you move because those rates are often based off where you live and how far you drive to work.

 

[barkley]

Your car insurance may change a bit once you move because those rates are often based off where you live and how far you drive to work.

how far you will drive to work is a factor to consider when you move (and when one retires or becomes work from home)-if the move will decrease the number of miles to a good extent then it's worthwhile to at least ask your insurer if they offer a discount on a vehicle that's driven under a set number of miles per year. we get a decent discount for it.

one issue of difference in living in city vs. county that we experience is sales tax-b/c we live outside the city limits we are under a lower sales tax which we never bring up on day to day purchases BUT for larger expenses (like when we have repairs, renovations, buy larger ticket items) we make a point of reminding the vendor of our zip code and verifying it for them.

 

[tony67]

Probably should speak to a local accountant about the best options for your state and locale.