Renters Should Pay More Taxes

Dream House In Kahala, Oahu, HawaiiEvery winter and spring, millions of homeowners across America pay their property taxes. In California, homeowners have to fork over roughly 1.2% of the assessed value every year to the local government. Put it another way,  in 83 years, a homeowner will have paid 100% the value of his or her home in taxes! How sick is that?

It is the American way for all citizens to pay their taxes, except for the many who don’t. We know by now that the often cited “47%” are the elderly or those who make under $20,000 so that’s fine. If you are one of them, just don’t vote to raise taxes on the 53% who already pay 100% of all federal income taxes please! Let’s all pitch in or starve the beast instead.

So why is it that homeowners, many of whom initially struggle to pay their mortgages, have to pay extra taxes while renters don’t? Let’s explore and discuss, shall we?

RENTERS VS HOMEOWNERS: A WRONGLY PERCEIVED CLASS DIFFERENTIAL

The clearest reason why homeowners have to pay property taxes while renters don’t have to pay renter taxes is because the government perceives homeowners as Lords! The word “landlord” makes it very clear that homeowners are considered the superior class. Back in the old days, peasants had to toil in the fields to pay for shelter. They couldn’t even afford regular food, let alone pay extra in taxes to help build schools and maintain roads.

Hundreds of years later, it’s odd that this archaic term and concept still holds true, even though America has grown to become the wealthiest nation in the world.  For anybody to equate renter to poverty is just ludicrous. Sure, there are some studies that show that the average net worth for a homeowner is 40X greater than that of a renter ($160,000 vs. $4,000). But overall, many more Americans nowadays rent out of choice, not out of insufficient funds.

SPREAD THE PROPERTY TAX PAIN FOR ALL

With a typical $700,000 home in San Francisco, the homeowner is paying around $8,000 a year to the city to fund schools and maintain public infrastructure projects. That’s $8,000 more than a renter pays, yet both the homeowner and the renter enjoy the same benefits. Clearly, this is unfair.

Just looking at my bill, I see $50 going to the SFUSD (I have no idea what the hell this is), and another $205 going to “teacher’s support”, even though I don’t have kids in public school. Supposedly, a couple thousand of my property tax is going to be used to build a bullet train from San Francisco to LA too. Sweet! I’m really going to be riding that in 2020 when it’s done? No, because we all know the project won’t be done until 2030 at the earliest!

Some renters argue that homeowners got it good already with the mortgage interest deduction of up to $1,100,000. In other words, if my interest rate is 5%, I can reduce my taxable income by $55,000. Well I say $1,100,000 is not enough! The figure is totally arbitrary, and should be raised by at least double to $2,200,000. It takes a lot of work to be able to save up 20% for a downpayment on a house and have 10% left over as a buffer in my 30/30/3 rule.  Homeowners therefore deserve a reward for their fiscal discipline, rather than be punished with more taxation.

EQUALITY FOR RENTERS & HOMEOWNERS MAKES EVERYTHING SO EASY

I’m a big believer in equality, and therefore I believe renters should pay a “Renter Tax”. To calculate an equitable way to tax renters, what we do is capitalize the annual rent by a normal risk free rate of say 4%.  Say for example you pay $24,000 a year in rent.  Divide $24,000 by 4% and you get $600,000. The $600,000 is the basis where you as a renter will pay 1.2% ($7,200) every year to the city, to also pitch in and support the schools and roads.

The Renter Tax proposition is a brilliant way to shore up any budget deficit the city or state may have, while creating a fair scenario for all people. Let’s create an environment where everybody proudly pitches in to ensure a harmoniously great nation for all our children! And most of all, let’s change the perception that renters are lower class citizens and tax renters just as much as homeowners. Equality for all!

Goal: If you are a renter, are you sufficiently frustrated yet? The goal of this post is to recreate the frustration and anger homeowners and certain income groups feel for having to pay more taxes. It’s understandable to vote on legislation to spend more of other people’s money for your own benefit. However, in the long run, you just end up hurting yourself because rents will increase to reflect increased expenditure by way of property taxes. If you want more spending, please also agree to pay more taxes as well. It is wrong to raise taxes on one group of people without having to pay more yourself.

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Updated 12/7/2014

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Bill says

    Wow, what a fool. The landlord pays property taxes on the building, and he gets the cash to pay it from the rents he collects. This is so obvious that I cannot believe the author is stupid enough not to know it.

    • says

      The rent I collect is for vacations like the two week one I’m taking to Europe this Fall. Who says I’m using yor rent to pay taxes?

      I’m surprised you are unwilling to help contribute taxes to the state since you benefit from their offerings.

      I guess you are voting against Obama since he wants tO raise taxes?

      • James says

        On the one hand you say renters are fiscally irresponsible because they don’t pay the same taxes, then act as though your own hypothetical fiscal irresponsibility somehow gives you the moral high ground. I like 99% of your stuff, I really do, but this is genuinely the most moronic thing I’ve seen on your blog.

        Think about this. Basically everyone here is telling you that you’re wrong and being stupid. Now, a few idiots will pop up and disagree with an intelligent person, especially if they say something that defies common wisdom…

        …But this is a case where people are coming up with solid rationales based on ownership structures, legal precedent, and so forth. Your argument is basically, “I want this system to work differently”, while everyone else is saying “This system makes perfect sense and there’s really no reason to change it.”

        Does it occur to you that maybe you need to eat some humble pie and admit that this was one of your more rash posts?

        • says

          A 99% hit rate ain’t bad!

          My goal for this post is to make renters think thrice before bashing greedy landlords or homeowners and voting on more legislation that is paid for by property tax because landlords will simply pass down the costs to the tenant, and in many cases by more than a 50/50 split.

          • Justin says

            Sam, I love most of your posts and understand where you’re coming from (while respectfully disagreeing on this issue), but this response:

            “The rent I collect is for vacations like the two week one I’m taking to Europe this Fall. Who says I’m using yor rent to pay taxes?

            I’m surprised you are unwilling to help contribute taxes to the state since you benefit from their offerings.

            I guess you are voting against Obama since he wants tO raise taxes?”

            … is classic compartamentalization of finances. You are using their rent to pay taxes.

            • says

              My point of this post is to highlight hypocrisies and to warn people who vote for more spending without paying for it, that eventually, everything comes around.

              After paying six figures in taxes a YEAR for a decade, I have definitely contributed my share in taxes.

      • James says

        Yeah, that really is an issue. It’s not just in government, either. When I was working for a big corporation with lots of hierarchy and ownership that was very far from the people who were operating the company, tons of money and time were being wasted all the time. It drove me nuts. I can’t even imagine how bad it is in government, where people are often encouraged to spend more in order to get a higher budget the next year.

  2. says

    This is an interesting perspective. We’ve struggled to pay our mortgage, taxes and insurance over the years but I don’t know if renter’s should pay some portion of taxes. It might lead more people to buy if they were forced to pay a portion.

  3. JR says

    I think I may see your approach. I am thinking of it as in hotel/motel room rental. There is always some fee, tax or surcharge added everytime. If I understand your proposition, your renter’s tax would be similar to this. The renter is paying for a service, much the same as for a motel or hotel room. If local and state entities can pose a tax on h/motel room rental, why not on property rental as well?

    I basically agree that renters get all the benefits of the property, yet avoid all of the down sides- i.e. all maintenance & repair costs, and in some cases general upkeep. Some owners will pay utilities, garbage and other fees. We cover structural/mechanical of the property; the tenant is responsible for everything else. All w/i the law and local codes, of course.
    We like to think (at least) that we maintain decent properties; i.e. our baseline is not the legal or code minimum.

    As a side note, being a property owner myself, I have ceased using “landlord” for many of the reasons you point out. I do not feel more powerful, richer or in any way better than my tenants just b/c I own the property. I used to rent apartments. I try to be the kind of ‘landlord’ I would have liked to have had.

    • Terry Pratt says

      Your Mileage May Vary, but renters usually do not get all the benefits of the property, and often have upkeep responsibilities. Just think of all the things YOU can do with/in/on/to your property that a renter cannot do in the property they rent.

      As just one example of how bad it can get for renters, I’ve seen places where renters are not allowed to have guests between 9pm and 9am. I’ve seen what I call “maximum security” buildings where there is NO buzzer or intercom system and there was no way for prospective visitors and residents to communicate (this was before cell phones).

      And I have rented houses where I was the one with lawn and snow shoveling responsibilities. Currently I rent a room in a house, and have no control over who or what else lives in this house. The person from whom I rent hasn’t worked in four years; when his UI ran out he went on disability. He goes to bars, picks up women, brings them home, and they move in (they don’t have jobs either). They drink in the house, they yell and fight, I’m the one who has to pur up with this crap – that’s not what I’d call all the benefits of the property.

      A number of people have moved out because of the fighting and such; I’m the one who has to pay more when vacant rooms drive up my share of the utilities. Maybe someone should be paying me?

      • says

        Tough living situation mate.

        Does the person who you rent from own the house/apartment I’m assuming? Rare case of someone making enough rent money to pay for everything and also collect Unemployment. How do you get on disability of there is no employer?

    • James says

      I know that in the commercial space, some leasors have what’s called a “triple net” rental system, where the tenant pays for taxes, insurance, and maintenance. Basically the landlord just holds the property, collects their rent, and absorbs appreciation. The only real risk they absorb is a change in demand or value.

      Naturally, it would be damned hard to try to pull something like that off for medium-low income residential rentals, given the nature of the tenants.

      • says

        James, you are exactly right! A contractor friend of mine told me this exact same thing a week ago about the triple net system. Sounds awesome if you are the owner! I wonder why more of us don’t do this.

  4. rusureuwant2know says

    You are nuts if you think that renters don’t pay property taxes – landlords pass that expense on to renters. Renters also pay for the insurance through their monthly rent payments. Landlords are in the business to make a profit – they aren’t going to eat the property taxes any more than businesses do – it all gets passed on to US.

      • Larry says

        You most certainly do. Laws vary from state to state, but the clearest and most incontrovertible proof that renters pay property taxes is that many states allow a credit to renters for property tax paid. Obviously a state would not provide a credit to a renter unless it considered the renter as having paid tax. I don’t have time to go through the laws for all 50 states, and some states are more explicit than others, but here is proof from some half dozen states, most of this taken directly from the state’s tax website:

        nj.gov/treasury/taxation/njit35.shtml
        For tenants, 18% of rent paid during the year is considered property taxes paid.

        michigan.gov/taxes/0,1607,7-238-43535_43538—,00.html
        Michigan’s property tax credit is a way the State of Michigan helps you pay
        some of your property taxes if you are a qualified Michigan homeowner or
        renter. The credit, for most people, is based on a comparison between
        household income and property taxes. Homeowners pay property taxes directly
        and renters pay them indirectly with their rent.

        vtlawhelp.org/renterrebate
        The Renter Rebate is a tax credit. You must have a low enough income to get
        the credit. You must have paid rent in Vermont for all 12 months of the tax
        year. You must have been a legal resident of Vermont for the whole tax year.

        taxes.state.mn.us/prop_refund/pages/refund_information_content_renter
        s_refund.aspx
        For purposes of the property tax refund, 17 percent of the rent you paid during
        the year is considered the portion paid for property tax.

        dat.state.md.us/sdatweb/rtc.html
        The Renters’ Tax Credit Program is a plan that provides property tax credits for
        renters who meet certain requirements.

        mass.gov/dor/individuals/filing-and-payment-information/guide-
        to-personal-income-tax/credits/real-estate-tax-credit.html
        For renters, the law assumes that 25% of rent goes toward property tax.
        Accordingly, renters may claim a credit in the amount by which 25% of their
        annual rental payment is more than 10% of their total income.

        azdor.gov/LinkClick.aspx?fileticket=12NzkNV0hrY%
        3D&tabid=257&mid=878
        Use Form 201 if you rented in 2011 and are claiming the property tax credit.
        This certificate shows what portion of your rent money went to pay taxes.

        See also: A Guide to Property Taxes: Property Tax Relief
        National Conference of State Legislatures
        leg.state.nv.us/73rd/otherDocuments/PTax/NCSL-gptrelief.pdf
        “Renters pay property taxes indirectly, in the form of higher rents, rather than directly to local governments. Therefore, the state is required to make some assumptions about how much of the rent payment represents property taxes. This “property tax rent equivalent” varies from state to state and region to region, depending upon the supply and demand for rental units. In tight markets, landlords have more ability to pass taxes on to renters. Property tax rent equivalents vary from 6 percent in New Mexico to 35 percent in Connecticut.”

        • says

          Larry,

          Thanks for this thorough comment with details. I’m amazed some states provide renters a credit, which is 100% opposite of what this post is suggesting!

          How do we know that renters pay property taxes indirectly, in the form of higher rents though?

          How does a homeowner, who owns and lives in his own home, charge higher rents to help pay property taxes?

          Thx, Sam

        • Larry says

          I think these questions have been already answered in the information I’ve provided. Again, I’m not going to look up every state, but in each case I am quoting state law. For MA, by law, a fixed 25% of one’s rent is considered property tax. For AZ, by law, the percentage is variable as comptued on Form 201. I would assume landlords in each state would familiarize themselves with their state’s laws and set their rents accordingly. Thanks.

  5. James Fogal says

    I see….if you lower that rent enough then the renter could pay the taxes. The reason you are paying the taxes is because you have shown the financial wherewithall to do so. Or is it your plan to tax renters and you keep the balance because you are not paying them. Sounds like a bait and switch. How about you continue to pay the taxes and show the renter what you charged for rent and what you charged for taxes that you are paying on his behalf. Why are you so greedy?

    • says

      I think it’s important for renters to pitch in since they consume public services as well. I also think all workers should pay Federal Taxes not just half the population.

      Equality.

  6. says

    This is just another money grab by the statists. I notice your not advocating reducing property taxes by an equal amount. More money for a bloated and inefficient government is bad for equality. Everyone loses!!! The government now spends 25% of GDP. Find ways to cut spending instead of ways to grab more money from the middle class.

    • says

      It would be fantastic to reduce property taxes for homeowners and redistribute the burden to renters through a Renter’s Annual Tax assessment.

      Alas, we must tow the party line given we have big government.

      • Janna says

        So, in other words, you are voting to raise taxes on other people while not raising them (in fact, lowering them) on yourself? I thought you said that was unethical!

  7. says

    Interesting post, good logical argument. However I totally disagree. Rent is set by supply and demand (rent-controlled apts in NYC are an exception of course). Property taxes are a risk of ownership. To the extent they can landlords should pass onto tenants.

  8. says

    Sam, I once sold a hotel because property tax shot up to 52K from 38K in one year. That 52K is the net that goes out of owner’s pocket to fund local schools. I owned property in different state, and my kids never went to public school. I think best way to fix this problem is to use national sales tax concept at both federal and local level. With that, tourists will fund the local government, and local government will have motivation to promote local businesses.

    I just wrote an article on this subject for anyone who is interested to learn more –

    http://www.streetsmartfinance.org/2012/04/07/a-simple-plan-to-skyrocket-your-personal-and-national-economy/

  9. says

    Hmm. Interesting. A couple thoughts on this. First, I am in no way in favor of additional taxes. But, I would be all for the total property tax burden being lowered and a renters tax being brought into play to make up the difference. Here’s why. As a homeowner (not an landlord, though), it drives me nuts that renters get to have their vote count and elect representatives at local and state levels that directly influence MY tax burden. For nothing more than equity, renters should have some skin in the game when it comes to the overall tax burden. Maybe they won’t be so quick to elect free spending politicians.

    The other thing I notice is this renter line of thinking that THEY are paying the taxes. No, you are buying a SERVICE nothing more. Let’s see who gets the tax lien if those taxes go unpaid. This double taxation line of thinking doesn’t work. That’s like me saying that I am paying federal and state income taxes when I but a new Macbook because Apple pays those taxes. Um, no.

  10. Serg says

    Renter’s tax is a dumb idea. It’s just wasting resources creating and enforcing a new law+tax just to end up in the same spot. The renter’s rent not only pays for the owner’s mortgage, but also for the property tax, maintenance and in some cases utilities. In other words, they are already contributing to the IRS.
    Also, at least in the state of Maryland, homeowners can get several tax deductions which end up in a large refund at the end of the year; something renters obviously don’t have.

    • Janna says

      In theory, if a renter’s tax were instituted, rents would be lowered since, in theory, property taxes for owners would be lowered. In that case, renters would now be able to deduct renter’s tax on their income taxes. In other words, the landlords would now be sharing the tax deduction with the tenants. However, this would only be valuable to the tenants if they are have enough deductions to itemize.

      In theory.

      • Serg says

        Why would the government shoot themselves in the foot by lowering property taxes?
        If an owner had no tenants then it is automatically less money for the IRS. The system is already complicated by having to deal with federal and state taxes. What you are suggesting is called bureocracy.
        A renter’s tax doesn’t make sense left or right.

  11. says

    Hmmmm. No. Definitely no. I am not in favour of any new taxes – unless they are matched by tax decreases elsewhere. Government needs to be reduced not expanded.

    As far as the fairness is concerned, I would favour anything that shifts responsibility of taxes directly on to users of the services – in the case of property occupiers (whether renters or owner occupiers) rather than owners. It’s people who use the services those taxes are raised to pay for – not the properties.

    As an aside, anything which broadens the tax base is a good thing – it gives more people a vested interest in cutting the bloated black hole of waste that government has become the better.

    • Janna says

      I understand your point about occupiers being taxed for services. However, property owners also have a vested interest in services such as schools, police, fire, sanitation, public transportation, street lights, roads, etc. since it affects the value of their property. And while big government is not always the best answer, if you reduce it too much, your neighborhood is going to deteriorate drastically.

  12. Danny says

    The govt rewards home owners with the homeowners mortgage interest tax deduction, this more than offsets alot of the time property taxes on the house each year, of course anything “Green” added to the house can also be deducted. We are a debt driven society, and thus this is why the govt encourages us to go into debt ourselves via homeownership, as it is the american dream. Thus us going in debt helps society function by giving other people jobs and so on. I don’t get to deduct a percentage of my monthly rent here in DC on my taxes. 1 bedroom 1325 a month, which is more that most mortgages in other places. homeowners have it too easy. It’s there loan and the interest on that loan should be paid, no tax break for incurring interest on a loan. If we were a credit driven society maybe they would give breaks to people that saved money, such as a tax deduction on the interest we get on CDs. This might encourage more people to save but then the economy would not go around and around if no one spent any $

  13. COREY says

    All costs are passed along to the consumer. Property taxes are ultimately paid by those living on the property.

  14. Lily says

    Wow, it seems like you have such a strong right wing bias that you automatically think renters pay less tax, when they are just paying it indirectly. To add a renter’s tax in addition to the property tax that landlord pays would be DOUBLE tax, something you right wingers hate. More importantly, it would also make owning artificially cheaper than renting (since owners don’t get double taxed).

    Why don’t we just have the tenants pay the property tax directly? And get rid of anti free market rent control and property tax control while we’re at it. It would result in higher state and federal tax collection (renters won’t be able to deduct as much as landlords on average).

    • says

      Why is raising taxes right wing? Democrats are the ones who want to raise taxes. Are you not paying attention to the news? Let’s raise taxes for all so that everybody has skin in the game. That way, our society benefits the most.

  15. says

    An interesting idea.
    Here is my take: part of the allure (or problem or choose your descriptive word here) of real estate is that it is so complex. It was meant to be that way, to keep most of the people out of it, to keep ownership aristocratic. Today, those who succeed in real estate are those who are able to navigate the complexity waters, better than the other guy.

    Currently, renting is simple. Sign a lease (sometimes), pay one sum per month, pay utilities (sometimes), and that’s it.

    I guess the question is, do landlords profit from being the ones to pay real estate taxes? If so, they will object as a bloc, and it will never pass.

    It is an interesting idea, however.

  16. bresner says

    I think the idea has merit. Forget about the idea of the name “renters tax”. Call it a Community Users Tax or CUT for short. If you live in the community you pay a tax for the maintenance of the infrastructure (police fire, schools, roads etc..). This could replace property taxes or be an addition to them. If you own the property but don’t live there you may have to pay property tax but not the CUT. Everybody would pay something. The landowners and the renters would both have a stake in the community.

    Would property owners that live in their property pay both? Probably but they would pay the CUT to whatever area that they lived.

    My hope is that the CUT would replace property taxes. Why??? Because the CUT revenue lets the local government know the exact amount of people that they have to provide for. Areas with few people will not need to waste resources on paved roads, sewers and such.

    Samurai, keep up the good work!!!

    VOTE OBAMA 2012

  17. ALiveH says

    If a homeowner pays tax he doesn’t own jack! He’s just renting from the government. Stop paying the rent (tax) and he gets evicted and the home gets taken. So, back to first principles. The first question is: if an asset is taxed do you really own it? Does government have the right to tax assets? How about 1% of all savings per year – what’s the difference? Btw, this point also applies to vehicle excise tax – none of us really “own” our cars, we’re just renting them from the government.

    Second, some economics 101. There are only two logical possibilities: taxes are already incorporated in rent – if this is the case, then the homeowner’s tax is already being passed onto the renter and the renter is paying it already, so no need to increase it according to your argument. The only other logical possibility is that rents are not elastic and are set based on what the incomes in that area will support – if that is the case taxing the renter, reduces the possible rent yield to the renter $-for-$, just more money going to the government, less to the owner which is the exact opposite outcome you seem to desire.

    Lastly, rent control has such a disastrous empirically proven track record (corruption for one, second nobody invests in upkeep if they can’t raise rents so housing stock becomes dilapitated). Introducing mandatory rent raises would also introduce all sorts of unintended economic distortions.

  18. Joel Corley says

    I am a landlord of an investment property. The property tax is paid by the tenant as part of the rent. Your conclusion that renters are getting a free ride is not correct.

    A landlords desired rent would always include the mortgage, insurance, and property tax. If the landlord can’t get at least that much, they will eventually sell the property to cut their losses.

    If there were an additional rental tax (and the total rental cost) would mean I would not be able to charge as much for rent. Dealing with the extra hassle of paing the tax would decrease the demand for rental housing, which means fewer tenants.

  19. JoJo says

    I do agree with some points you make in this article. However, I think the argument you make about homeowners having more money is a bit skewed. While their net worth might be $160,000 that isn’t necessarily liquid – it could just be equity in their home. Also, in a perfect world, it would be easy to say that everyone hasto pay property or “renter’s tax”. However, based on your model, how easy would it be for a renter who is barely scrapping by on maybe $25000/yearly to pay $7000 in additional taxes? Not very. Also, those who rent usually get what they pay for, meaning that the areas they live in usually aren’t kept up as well as suburban neighborhoods. In additional, the schools are sub-par as well. Most people who rent would love to own a home, but simply cannot afford to at that moment in time. Renting is the cheaper option for a reason.

    • Terry Pratt says

      It is quite ironic that currently, it would be cheaper for most renters in nearly all major US markets to own than to rent.

      It’s renting they can’t afford – owning they could afford if they could get financing.

  20. ukiddingme says

    This is probably the dumbest article I’ve read on the internet.

    “Back in the old days, peasants had to toil in the fields to pay for shelter. They couldn’t even afford regular food, let alone pay extra in taxes to help build schools and maintain roads”

    Maybe not… Peasants were in fact taxed and none of that money went to public schools as they didn’t have public schools in “peasant” days, road travel was taxed, and guess what? People nowadays have to toil for shelter too. Rent is a tax for using someone elses space.

    Renters don’t pay tax as they don’t deduct the rent they pay from their income. Landlords get that privilege. To tax renters is to double tax every rental property in the US. You claim ethics but your proposal is the definition of un-ethical.

    Here’s the dumbest part of your article.. Renters already pay more in taxes because they DON’T get the mortgage deduction. You’re proposition has renters paying 30% of their rent and no deductions ON TOP of the same tax landlords pay. That’s in effect double taxing renters. Brilliant.

    Let’s use some more simple math.. You have a $1MM home and pay $50K in interest at 5% and $12K in property taxes. $50K earns approx 16K in tax savings (even though landlords get to write off the property taxes as well at a 35% fed bracket), netting $4,000 in the landlords pocket. Sooooo, how is it that landlords are paying an unfair share of taxes???? What’s more is, the landlords aren’t even paying the taxes, the income from the renters is!!

    You make no sense.

    • says

      All is theoretically good, but not so once you see the property tax bill and the line-items property owners have to pay for.

      Also, rent control puts a serious kink in your assumptions as not everything is automatic ie landlords can’t all of the sudden raise the rent to split the costs of some new tax measure, school funding, bullet train, etc 50/50.

      Politicians pander to renters in SF b/c 65% of people here rent. They tell them they are going to raise money for XYZ project paid for by homeowners, to redistribute to renters.

      Have you ever owned? B/c I have rented and owned and therefore have perspective.

  21. Terry Pratt says

    Sam said:

    How do we know that renters pay property taxes indirectly, in the form of higher rents though?

    How does a homeowner, who owns and lives in his own home, charge higher rents to help pay property taxes?
    —————————————————————————————-

    Things like cap rates, Schedule E, and financial statements can demonstrate whether renters pay property taxes indirectly, in the form of higher rents.

    Basic economics 101 tells us that if landlords are not charging higher rents to help pay property taxes, they are losing money on their investment, and will sell their property and reinvest their cash in a profitable investment.

    Anecdotally, I have known several homeowners who rented out extra rooms in their homes, and collected sufficient rent to pay their mortgage, their insurance and their property taxes – thereby effectively living in their home for free.

    • says

      How many landlords so you know raise their rent like clockwork to match the market? It is a small minority.

      If renters can feel the pain of a Rwnter Tax like homeowners do twice a year with property tax, TOGETHER we can lower desires to vote for more wasteful spending by govt and lower our collective burden. Otherwise, the majority will always vote for more, more more bc that’s all politicians do, pander.

  22. Terry Pratt says

    And one more comment: Renters are not volunteering to pay more tax because they are generally not in a financial position to afford it.

    While there are many valid llifestyle situations where renting is a good choice (e.g. just starting out and without an established career or family), most renters are not renting by choice – buying a home is simply not an option available to them.

    Median renter income is approx 40 percent of median homeowner income (in the ’80s it was approx 60 percent) ; this should provide a clearer sense of the financial (taxpaying) constraints renters generally face. Unsuprisingly low-income renters are in the most constrained position; according to Mortgage News Daily, half of all low-income renters spend at least half their income on housing.

    Sam, where on earth do you expect these low-income renters to come up with more money to pay a Renter’s Tax?

  23. Nomadic1 says

    This is a load of BS, many people rent because they can not afford the extra cost of home ownership, which includes things like property tax. Are you saying renters might as well buy a home. You CHOSE to be a homeowner. Why should renters pay a property tax when they do not own the property they rent from

    • says

      Because renters benefit from public services as well, which is currently largely paid for by a homeowner’s property tax.

      Yes, homeowners choose be homeowners, but don’t insult renters who also choose to be renters.

  24. Mike Shapiro says

    This article is foolish:
    1) Renters _do_ pay real estate tax in the form of the portion of their rent that goes to…. wait for it….. real estate tax.
    2) The author uses that 47%, tea party number which is not the number of people who don’t pay taxes, it is for people who do not specifically pay, graduated, federal Income Tax.
    3) Renters do not benefit from the mortgage, interest tax deduction or other, welfare for the middle class goodies.

  25. Kelly Clark says

    Are you serious? Rental properties INCLUDE the tax fees in the rental payment. To think renters arent paying taxes already is ridiculous.

    • says

      Clearly you do not live in a rent controlled city then where one can only raise taxes by 1.9%, but sees their expenses go up by triple.

      It’s important landlords raise taxes to market levels whenever they can get a chance to share the burden on ALL. We can’t keep voting for more goodies from the government to only shoulder the burden on homeowners via their property tax.

  26. Benjamin W. says

    quite possibly the stupidest thing on the internet. i thought at first that this was either an astounding troll job or an april fool’s day joke, but you seem too serious.

    all landlords pay property tax on properties they rent out. the amount that they charge in rent reflects this amount plus the expected depreciation that they expect from tenant wear and tear. otherwise, that landlord is a moron for eating that tax and should be double taxed to discourage stupidity.

    • says

      My goal is to elicit emotion and make people who vote to raise taxes on others, many of whom are renters who vote for XYZ city/state spending to understand how it feels when someone else asks you to pay more taxes. Doesn’t feel too good does it?

      It’s fine to vote for more government goodies if you are also willing to pay as well. I hope this article encourages homeowners to raise rents to market maximums to spread the burden so we can all flourish.

  27. says

    As many people stated, the property tax is paid by the owner of the property already, so the renter is paying for that as part of the rent. If this were not the case, why would anyone bother to be a landlord and rent an apartment? The benefit to the owner is that they get to keep the property. The renter has no ownership. It may be good for the renter to have to pay a part of the tax so he/she has more of a stake in the local community, but if that were the case then this should be removed from the cost of the rental.

    I personally have a choice between owning or renting. I choose to rent because it is cheaper than owning “now” versus “later.” Plus, I may need to move frequently as in the startup world my job location frequently changes every few years. Meanwhile the owner of the property invests in property taxes because he/she is getting the benefit out of the value those property taxes add to the home itself. The renter is still paying state and federal income tax, so it’s not like they are getting off tax free.

  28. says

    I agree that the property owner pays the tax and having a renter pay would cause a double taxation. You should consider pushing this to those that own the buildings. (ie. If you don’t buy buildings and rent them out, you would have fewer renters and should therefore buy buildings and turn them into condos and sell them). The issue is that you have people that think they will make more money by renting to others and then complain about the taxes. Which now brings you to the single homeowner, who really gets the brunt of the tax burden, but also aren’t smart enough to know they pay for all the bonds (in CA) that get floated and for which they vote for.

  29. Jacob LaRoque says

    Thank you people for all your inputs. I am an 8th grader working on a cba and the question is should renters pay property tax by themselves or to a land lord. All your comments have helped my a lot thanks!:)

  30. Michael says

    No. Understand? No. You hold a hard asset. I don’t. This is not about equality. You just want more money for yourself. Your hard asset already generates passive income which comes from active income. And now you want more. Like 1913.

    Focus your efforts on eliminating property taxes or at the least exempting those without children for paying them as property taxes go directly to the public school system.

    I’m not paying taxes on your hard assets. Understand?

  31. Brian says

    Uh, as soon as you can convince Congress to do away with the mortgage deduction on your taxes to help supplement your home purchase, we can talk about this “unfairness” of property tax being paid by homeowners and not renters … Oh wait, renters already pay this – it’s called rent that goes to their landlords to help them pay for their property taxes.

    On second thought, just get rid of the mortgage deduction and then we’ll be square.

  32. Brian says

    I think I should mention that I own my home and even though I benefit from the mortgage interest deduction, I think it’s ridiculous.

  33. Gabe says

    Wow, you are way off base here. Landlords are surely setting rental prices to recoup their property tax costs (among a thousand other things) so renters are in affect paying the tax. SanFran has an extremely short supply of housing and needs substantial rental properties given the amount of transplanting that feeds this economy. But don’t worry, school districts with more rental properties are substantially less successful. And even if you don’t have kids, that damn school district is a huge contributor to the long term value of your house, so you’re investment is benefitting despite not using the school.

    Long story short: just pay your property taxes.

  34. ap999 says

    New here, first post. I love your stuff and been browsing and reading more than doing any talking yet.

    I have to say I do not agree with you, but listen to my reason why. First off, I see big government just taking more money out of tax payers income. They will probably end up double taxing, they will tax the landlords and then renters. Therefore it would be double taxing, also at this point its not about spreading the load in the eyes of the government. They just want more and more. I don’t know about you but I do not trust California to do the right thing, they will waste those extra tax dollars. I think the bigger problem is the government, the more we give them the more they spend on stupid stuff. Taxing renters would hurt a lot of variety of families and income ranges for no good reason, for only Uncle Sam to waste more. If you want to see results go after government and see where the real waste can be cut down and then have property taxes lowered. There is no reason California should have a deficit with all the different other taxes coming in from business taxes, business income, car registration, tourism, personal income and property taxes and the list goes on!

    Speaking of which other states like Texas and others with no State Income tax do just fine. Other state economies do well without state taxes. Why is it California is screwing its citizens in every single way. We citizens should be working against each other and imposing more taxes.

    As for landlords, well its apart of the business and investment. Landlords as whole in any given area should be watching what they charge for rent and account for taxes. I see some Landlords give away real good deals, but as a landlord you need to do your math too to make sure it makes sense at the end of the day, just like any other business would do.

    That is all, now I’ll get back into my lane.

    • says

      I agree with you about not trusting the government to spend our money wisely.

      The goal of this article is to explicitly stick it to renters to make them feel the pain of wasteful government spending to get on board and vote DOWN excessive spending that always gets tacked on to more property taxes.

      If everybody can feel the pain together, we’d stop the madness of spending more than we have.

      Rents will go up, but the misdirected blame will go to the landlord not the government.

      • ap999 says

        I really do not think thats a good idea by sticking it to the renters by some sort of government mandated tax. Our government clearly has a spending problem, you don’t give a drug addict more drugs, or a alcoholic more beer and so on.

        To me being a Landlord its business just like any other business. You have to profit and sustain, I have seen many landlords just not do the their homework and math and loose out. Thats just bad business practice IMO. Just like when you go into a store you buy merchandise, the total is added up and you pay. Just like rent, landlords need to come up with a figure that will pay the mortgage, insurance, maintenance, and TAXES. Letting the government double dip is not the answer. If the Landlord can not afford it still, then there could be a bigger issue, is he or she too stretched out with a high mortgage? Also its just the risk of the investment too. Renters decide to rent because they may not want that type of risk, just like when you invest in anything else there are associated risks.

        Any way, I have enjoyed reading many of your other articles. I will be sticking around. I am here to learn and build my wealth, make smart decisions, grow, and most of all even if we do not agree with everything. At least it gets me thinking…

  35. Moshennik says

    While the price on rental is set by supply and demand, and typically I would not make an argument about cost+ pricing of rentals, in this case because the entire rental market is subject to taxes they do get passed through to the renters.
    So, even though renters don’t pay taxes explicitly they do pay them implicitly.

  36. jpad says

    FS – great website and blog topics. One thing I’d love for you to blog about is the $150k cap for people not being able to take advantage of investment property deductions. I’ve spoken to a handful of CPA’s and tax attorneys and they’ve all said that if your AGI is over $150k that you can’t take any rental losses or depreciation. You can roll it over to subsequent years to help with your other income, but I don’t plan to make LESS money next year…I’d like to continue to grow my wealth. I scratch my head at how these real estate “moguls” continue to push being in RE is the best investment. I have some rental property here in HI and continue to take losses each year, but can’t do anything about it since my HH income is over the 150k threshold. Any suggestions or comments on this would be HUGELY appreciated! Mahalo in advance!

    • says

      Welcome to my site! How did you find it?

      The $150k cap is real. The only way is to defer your income or start a business and shield your income with legit expenses.

      If there is a income hit one year, I would consider making some moves. I was in your situation but now as a retiree and business owner, this will be my first year where I will figure out some recapturing.

      Good luck! Making lots of money isn’t a bad thing!

  37. Scott says

    Renters pay property taxes, because the apartment owners pay property taxes and OF COURSE pass the cost of those taxes on to their renters in the rent they charge each month. In fact, in some places, the apartment owners pay a HIGHER rate than homeowners and pass that cost on to their renters; therefore, apartment RENTERS pay a higher rate than homeowners and pay more for services than homeowners.

      • Sandeep says

        Just stumbled on your blog recently and have enjoyed reading it. Generally agree with your emphasis on lower government spending and not asking for taxes to be raised on others to pay for your pet projects. But this is truly off-base for a number of reasons- more taxes to the government is in no one’s interest- I can gurantee you that your property taxes arent going down even if renters pay property taXes- the government will just figure out more ways to spend. Another point made by other readers is renters already pay property taxes in the form of higher rents. Your question asking “how about the owner-occupied properties where the owners also pay property taxes but have no renters to recover them from” is plain absurd. Renters are expected to pay property taxes in the form of higher rents but owners are somehow exempt? By your logic only people paying property taxes are- a. Renters (in the form of higher rent) and b. landlords (who get their renters to pay anyway).
        Finally you complain about not having kids but having to pay property taxes for schools. I can complain about my taxes going towards exorbitant defense spending and wars I dont agree with- you know what? too bad- we cant pick our favorite projects to have our taxes spent on- for that you have charity!! For the rest lobby your representatives so that your money is spent optimally.

        • says

          Good stuff.

          Not sure if you or others figured it out by now but my goal of this post is to infuriate enough renters to stop voting for ever increasing spending bc ultimately they will pay the price through higher rents.

  38. Greg says

    This post is ridiculous. It’s a shame I found it on google and this was my introduction to this site. I won’t be coming back.

  39. Mike says

    A renter’s tax would be double taxation to the renter. How can that be you ask? Here is the logic:

    1) Landlord pays property tax
    2) Landlord must make a profit, therefore cost of property tax is passed to the renter
    3) If renter pays renter’s tax, then the property is in essence being taxed twice; once to the landlord and once to the renter.

    The idea that renter’s don’t pay property taxes fails to look beyond the surface of the rental transaction. Taxes are always passed on to the ultimate consumer. They have to be because if the business cannot pass on the tax, then they cannot make a profit. We can have an argument about what percentage of a tax is pass on, but in the final analysis if a business cannot pass on enough expenses, then it ceases to exist. And taxes are nothing but another expense to a business.

    A nice example of a tax that is passed on is the medical devices tax that was a part of Obamacare. People thought they would just slap a tax on the manufacturers and they were just going to take it. But no business can or will just take it, the tax is passed on becasue it must be pass on.

    Property taxes are passed on to the renter, unless of course the rental unit is some sort of government subsidized unit where the landlord gets a break on property taxes. I don’t think we are talking about the exception here though.

  40. Peter says

    My state recognizes that renters pay property taxes and gives out renter rebate checks for those who meet income requirements.

  41. Stan says

    Renters do pay the taxes since that cost is passed on to the rent. And the owner gets to take the taxes paid as a writeoff and not the renters. There is your ‘renter tax’.

  42. Betty Be boop says

    Want to lower property taxes? Stop funding the firefighters into their sweet pension deals and outsize paychecks. Stop funding the road building / maintenance BS. Oppose the complexification of everything, the half-million dollar controlled intersections in favor of low-cost, effective roundabouts. many roads aren’t worth it. Fire safety is at all time highs. Start a volunteer department like the good old days. Oppose Walmart so your local economy doesn’t tank causing a scramble for tax dollars.

    And there is a difference between the renter and the landlord: equity.

  43. Tom says

    Renters tax is a bad idea. The renters can claim they’re homeless, pay no rent and therefore don’t owe any renters tax. If you want to share the tax burden, eliminate the RE tax and raise sales taxes.
    just about everyone is going to spend money on something.

  44. RN says

    Hi!

    I must say I have enjoyed a lot of your articles on this website and I agree with most of them. However, this one seems to confuse me. In my opinion, the landlord owns a property and pays property tax. It´s his choice to rent it out, live in it himself or do whatever he wants with it. If he decides to rent it out he needs to (should) cover the property tax in the rent along with other expenses as you do with all other businesses. For example, if you own a transport company you include the price of fuel to your total invocie (Landlord/tenant). If you go out for a Sunday drive in your porsche you pay for the fuel yourself (homeowner). Personally I make a descent living and have my own company. I have nothing against bankloans if they go to a solid investement generating revenue. A private house is by me considered a personal luxury and if you have to pay off a mortage for it, it’s because you have lived over your own personal income and it might have been a bad investment. Renters Pay property tax, atleast on my properties, included in rents.

    • says

      The goal of this article is to make renters understand there is no free lunch. If renters blindly vote to raise taxes on XYZ government proposal, they will pay through higher rents. In other words, besides inflation lifting rents ever higher, renters who vote for fiscal irresponsibility are shooting themselves in the foot.

  45. says

    Uhm… You are implying you are a landlord in San Francisco. The market for sales is booming there. If you don’t like paying property taxes in SF, put up a “For Sale” sign and have fun fighting out from under the clawing hordes.

    And as many other people have pointed out… Just adjust the rent so that the renter pays the prop tax. Prop tax is 2%? Adjust the rent by 2%.

    • says

      I’m definitely raising the rent. Thanks for the encouragement.

      My point of this post is to highlight that there is no free lunch. When people vote for more government spending, property taxes goes up, and rents go up.

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