Financial Samurai

Slicing Through Money's Mysteries

How To Lower Your Property Taxes: Property Assessors Hurt Homeowners

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Curious how to lower your property taxes? You’ve come to the right place because I successfully lowered my property taxes three years in a row during the 2008-2009 financial crisis.

As a homeowner, it’s up to you to fight like hell to keep your housing expenses as low as possible. During times of uncertainty, we should all be fighting to lower our property taxes.

If my 2021 housing prediction is correct, property prices will likely decline and then rebound again. You have a chance to lower your property tax bill during this window.

The Property Assessor’s Office Is Not Your Friend

Your property assessors’ #1 goal is to collect as much property tax from you as possible. Your goal as a homeowner is to make your home look like the dumpiest of dumps to pay the least amount of property tax possible. An asteroid could wipe out your entire city. But if the assessors office survives, they will come for you to collect!

During the 2008 downturn, I religiously filed a property tax appeal to get my assessed value lowered. In the midst of the financial crisis I was shocked that the assessors office appraised my primary residence for $100,000 more. If they got away with it, I would have paid roughly $1,200 more in property taxes that year. I ultimately won my appeal three months later and kept my assessed value the same as before.

For the next three years I got more aggressive and managed to lower my assessed value $100,000 below my purchase price. When the world is falling apart, it’s an easy sell to say your property’s value is also going down the tubes.

In fact, your goal is to get the city to assess your property as close to $0 as possible.

This post will highlight how I almost got screwed over by the San Francisco property assessor again. I’ll explain how I fought back and came to a compromise.

Just like how every homeowner should be taking action to refinance their mortgage with rates at record-lows, every homeowner should take action by filing property tax appeals!



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States With No Estate Tax Or Inheritance Tax: Be Strategic Where You Reside

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Although taxes are astronomically high in California, one positive is that it has no estate tax upon death. As it turns out, the majority of U.S. states do not collect an estate tax. This is good because there is already a federal estate tax that tops out at 40%.

Let’s take a look at the list of states with no estate tax, also sometimes known as the death tax. We’ll also look at states that have no estate tax and no income tax.

Finally, I’ll highlight my top five states to have legal residence in when you die based on the combination of low taxes, natural beauty, and opportunity for your heirs. After all, you want to think about those who carry your proud name long after you’re gone.



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Historical Gift Tax Exclusion Amounts: Be A Rich Strategic Giver

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Despite paying taxes your entire life, even when you die, the government still wants something from you! As a financially savvy individual, it behooves you to understand as much about the tax rules as possible. After all, tax is likely your largest ongoing expense.

The Internal Revenue Code imposes a gift tax on property or cash you give to any one person, but only if the value of the gift exceeds a certain threshold called the annual gift tax exclusion. For 2020, that annual gift tax exclusion amount is $15,000.

Historical Gift Tax Exclusion Amounts

That’s right, you’re not allowed to give more than the annual gift tax exclusion without incurring a tax. This is despite having already paid taxes on the $15,000!

For example, let’s say you earn $200,000 a year and pay a 20% effective tax rate. Your take home pay is $160,000 and you save 20% a year, or $32,000 a year.

If you wanted to give 100% of your hard-earned savings to someone, you may have to eventually pay an additional tax on $32,000 – $15,000 = $17,000 if your estate ends up over the estate tax exemption amount. Thankfully, the estate tax exemption amount is $11,580,000 per person.



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How Much Money Do The Top Income Earners Make?

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Updated on June 3, 2020

Americans are rich by world standards. With an average GDP per capita income of ~$60,000 for 2020, America consistently ranks in the Top 20 richest countries in the world. Many of the world’s top income earners live right here in our great country.

Other rich countries that have a higher GDP per capita than America include Liechtenstein ($139K), Qatar, Monaco, Macau, Luxembourg, Bermuda, Singapore, Isle of Man, Brunei, Ireland, Norway, Falkland Islands, UAB, S. Maarten, Kuwait, and Gibraltar. Countries with similar GDP per capita to America include Hong Kong, Switzerland, and Saudi Arabia.

If at birth, you had the mental capacity to choose where you’d like to live for most of your life, living in a top 20 richest country will more than likely help you become a top income earner as well.

Even if you end up being the most mediocre producer, you are still miles ahead of much of the world. Too bad many of us can’t pick where we want to grow up and earn a living. As such, it’s nice to understand how we compare against the rest of the world to give us some perspective.

Let’s take a look at what the top income earners make in America.



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Property Taxes By State: Why We Should All Embrace Higher Property Taxes

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This post will provide a detailed look into property taxes by state. Where you live in America can really help or hurt your finances. In a time when working from home is more feasible, many more people are trying to geoarbitrage to make their income go farther.

I used to despise property taxes because the city would raise them even when property prices were collapsing during the financial crisis. It was/and still is up to property owners to fill out a complicated form, find comparable homes that have dropped in price within a certain radius, make sure the comparable sales fit within a certain timeframe, and pay a $60 fee to do so with no guarantee you’ll win!

If you didn’t spend time contesting your property taxes, the city would gleefully raise them despite the obvious declines. The city counts on meek or ignorant people to fill their coffers and pay themselves handsome salaries.

It’s just like how members of Congress continued to get paid even when they shut down the government or close businesses during a global pandemic. Can you imagine losing your job in the recession and having to pay higher property taxes while knowing your neighbor sold his house for 20% less than the city’s assessment?

Fight Your Property Taxes

I fought my property taxes in 2009, 2010, 2011, and 2012 and won for a particular property I bought in the beginning of 2005. I had to fight since the value of my stock and real estate holdings were getting hit and I no longer had a job in 2012.

Since 2013, I’ve let the city tax me back to my normal purchase price plus a ~2% a year catch up increase because the economy has thankfully recovered. I don’t mind paying my fair share so long as it’s just.

After paying ~$450,000 in property taxes since 2003, I’ve finally accepted the reality that it’s up to those of us who saved like crazy and took the risk of owning property to pay for our community’s infrastructure, education, public transportation, service men and women, and other public works. We must pay for those who cannot or will not.

What I’ve also realized is that after much debate, my fellow renters absolutely believe they are paying their fair share of property taxes, even if they aren’t cutting a separate check to the city twice a year.

With this thought in mind, I now believe it’s logical behavior for renters to keep on voting for increased government spending because they all want better and are willing to pay for it through higher rents.



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Tax-Free Profit Exclusion: Prorate For Long Term Rentals That Turn Into Primary Homes

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Tax-free profit exclusion for long term rentals need to be prorated

Unfortunately, sometimes dreams don’t come true. In my quest to simplify life, I was blinded by the belief that the rental property I bought in 2003 would also be eligible for the full $250,000 / $500,000 tax-free profit exclusion if I moved back in tomorrow and lived in it for the next two years before selling.

I believed this to be true because I sold a rental property in 2017 that was eligible for the full $250,000 / $500,000 tax-free profit exclusion. I only rented out the property for 2.5 years after living in it for 10 years prior.



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Mortgage Interest Deduction Limit and Income Phaseout

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The mortgage interest deduction limit has decreased since the new Tax Cut & Jobs Act was passed in 2018. In the past, you could deduct mortgage interested on up to $1 million in mortgage indebtedness.

Today, according to the IRS, the maximum mortgage amount you can claim interest on is $750,000 on first or second homes if the loan was taken after Oct 13, 1987. You can also deduct interest on $100,000 for a second mortgage loan used for anything other the purchase of your first or second home.

More specifically, home equity debt means “any loan whose purpose is not to acquire, to construct, or substantially to improve a qualified home“.  Interesting right?  In other words, you can take a $100,000 home equity line of credit to buy a Porsche 911, an incredible home theater system, and do a little landscaping and all the interest is deductible!  No wonder why everybody took out so many Home Equity Lines Of Credit (HELOC)!

You already know that the government is sexist because the maximum mortgage interest deduction limit stays at $750,000 even though both people could have $750,000 mortgages. It’s beyond me why the government thinks two people who want to marry with $750,000 mortgages each, don’t deserve to keep their deductions.

But at any rate, just be aware that if you can afford such a mortgage, you might want to think of this crucial loss of deduction before you get married. With rates averaging 3.25% in 2020,  you could literally lose out on tens of thousands in interest deductions!



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Short-Term And Long-Term Capital Gains Tax Rates By Income

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If you need more incentive to generate passive income in order to give yourselves more freedom, then look no further than the below two charts. It shows the capital gains tax rates by income.

The short-term capital gains tax rate is equivalent to your federal marginal income tax rate. Once you hold your investments for longer than a year, the long-term capital gains tax rate kicks in. The rate is much lower.

Here are the capital gains tax rates for 2020 and beyond.

Capital Gains Tax Rates By Income For Singles

Long-term capital gains tax rates by income for single filers

If you’re single, the largest tax spread difference between short-term and long-term is if you make $200,001 – $425,800 in capital gains. We’re talking a 20% lower tax rate (35% vs 15%).

To generate $200,001 – $425,800 in capital gains you could earn a 4% rate of return on $5,000,000 – $10,645,000 in capital. Or, you could earn qualified dividends at the same rate with the same amount of capital. Or you can take profits on long-term holdings. There are many ways to make a 4% rate of return.

For the 2020 tax year, you will not need to pay any taxes on qualified dividends as long as you have $38,600 or less of ordinary income. If you have between $38,600 and $425,800 of ordinary income, then you will pay a tax rate of 15% on qualified dividends. The rate for $425,801 or more is 20%.



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Tax Rules For Buying A SUV Or Truck To Deduct As A Business Expense

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If you own a business, you should know the tax rules for buying a SUV or a truck. You can and should deduct the operating expense of your vehicle if you use it for your business. This article will highlight the latest automobile tax deduction rules for the new decade.

As you may have read from my Net Worth Rule For Car Buying post, I’m looking into buying the latest Range Rover Sport HSE to replace Moose, a 15 year old Land Rover Discovery II. The 2020 Range Rover Sport can be had for roughly $75,000 MSRP, an exorbitant amount of money for a vehicle.

SUVs are an anathema to eco friendly San Francisco. But I’ve long argued that if you don’t completely destroy your car before buying a new car, you are still ADDING pollution to the world.

I like SUVs because they ride high so I can see what’s going on in traffic. They can go through snowstorms with ease, a necessity for when I go up to Tahoe in winter. Furthermore, I’d rather be in a larger vehicle vs. a smaller vehicle during accidents. As a parent now, safety is paramount.

SUVs have become more fuel efficient thankfully. The new Range Rover Sport V6 engine produces 345 hp at 17 city / 23 highway. Just 10 years ago such an SUV would be a V8 and run around 12 city / 17 highway mpg with only 185 hp. But this is not a post to defend purchasing a large vehicle.

With the tax reform act passed at the end of 2017, buying a truck or an SUV that is over 6000 pounds has become more favorable for 2018 and beyond.



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