If we want to boost government revenue, then renters should pay more taxes. With more renters paying more taxes, we can better fight for equality and help all people. The more people who can pitch into pay taxes, the stronger our economy.
Every winter and spring, millions of homeowners across America pay their property taxes. In California, homeowners have to fork over roughly 1.24% 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 and come up with the down payment, have to pay extra taxes while renters don't? Let's explore and discuss, shall we?
Why Renters Should Pay More Taxes: We Are All Equal
So why is it that renters don't have to pay a renters tax while homeowners have to pay property tax?
The clearest reason 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. Then there's the term “master bedroom.” You get the idea.
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.
Related: Why The Housing Market Won't Crash Any Time Soon
Everybody Needs To Pay More Tax
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 it's now 2021, 11 years after I initially wrote this post and the project has been scrapped! But of course, not before wasting at last a billion dollars of tax-payer's money.
Some renters argue that homeowners got it good already with the mortgage interest deduction of $750,000 (was $1,000,000). In other words, if my interest rate is 5%, I can reduce my taxable income by $37,500. Well I say $750,000 is not enough!
The figure is totally arbitrary, and should be raised by at least double to $1,500,000. 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 Between Renters And Homeowners
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. Renters should pay more taxes for better equality for all!
If you are a renter, are you sufficiently frustrated yet? The goal of this post is to recreate the frustration 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. We know President Biden wants to raise the top marginal income tax rate, increase the top capital gains tax rate, and remove the stepped-up basis. This stinks for higher income earners working exhausting hours.
The mindset of always raising other people's taxes is embedded in America. However, in the long run, raising rents ends up hurting renters. Rents will simply 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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Related: Property Taxes By State: We Must Learn To Embrace Ever Higher Property Taxes
Note. In the UK, it is the occupant of the building who pays the property tax, regardless if they are a renter or a homeowner. It's called the Council Tax, and it's working just fine over there.
It’s really great that you were able to save up for a 20% downpayment. I commend your fiscal discipline. As it happens, most people in expensive real estate markets get their downpayments from inherited wealth – from their parents, their grandparents or similar. Maybe not most people YOU personally know – but most people. The idea that the average earner (not a high income couple living with their parents) in a high cost of living location can save 150K to buy a house during their 20s and 30s is frankly laughable. Real estate costs in those locations have FAR, far outpaced salaries, which explains why every Boomer alive in America believes they are a real estate investing genius. As with most things, the fact that our economy and our history is insanely unfair to those who do not come from wealth does NOT MEAN that YOU didn’t work hard. You did work hard. So did a lot of other people who didn’t get a downpayment from a family member. The real question is – why is any normal person still living in the SF Bay area? California is full of beautiful, less expensive places to live. We should have a national program to help middle income people move into lower cost of living places. That will revitalize a lot of our smaller cities and towns and get housing costs into check in expensive cities. The pandemic started this process – let’s hope it continues.
Regarding the San Francisco Bay area, the main reason is due to income. You can be a 22 or 23-year-old college graduate who makes $120,000 your first year. Pay is that good, and by the time you’re 30 years old, you’re probably making over $300,000 a year. Add two of these type of people, and you can see how affording property is feasible.
See: https://www.financialsamurai.com/migrating-to-california-from-the-midwest-or-the-south-for-a-better-life/
Every landlord worth their salt includes their property taxes within the overall calculation of what to charge renters,,,renters ALREADY pay the property taxes for the place they’re renting from. Your ludicrous argument totally ignores this and is basically asking for them to pay a separate tax on top of the taxes they’re already indirectly paying while the landlord STILL profits off them. Awful.
Overall, not a high quality post compared to some of your other, better ideas.
It’s all local supply and demand for the rental market. Taxes inform rent prices. If taxes change, sometimes the renters pay for it, and sometimes the local rent market is so tight that landlords know they can’t increase the rent without risking an empty unit.
No need for a law, sheesh. You must be trolling.
Renters face an annual rent increase from their landlord. The landlord claims it’s cause their taxes increased, so the place that burden on the tenants instead by raising their rent. Taxes should not be the tenants burden. It’s cost of business for the landlord, and can be used as a tax write off (or a percentage of it anyways). This forces tenants to move every year cause of rent increases, or move in with family. A way to offset this is to due a multi-year lease which could limit rent increases, but a landlord would have to be willing to accept anything longer than a 12 month lease.
so i believe the idea that renters should pay property tax or an extra tax is silly, the more i thought about it the more i thought about how its like any other product a business is trying to sell. when buying property or owning it with the intention of leasing it out then you make a list of cost. I would assume a smart or experienced business person would account for all cost to include property tax and then charge the renter an amount to cover the cost and make a profit whatever that profite margin may be. I am not an expert this was just a train of thought i had recently.
Ah, but the biggest error you make is that you assume that I’m smart.
At least hopefully you and maybe some others will realize that forwarding to increase property taxes to pay for XYZ desires will simply lead to higher rents. There’s no free lunch and we need to be very disciplined as the society when I comes to thinking about spending other People’s Money.
When I rented it went up pretty much yearly. I’m just now getting your point about thinking someone wants free food. In many places if landlords didn’t take into account property taxes when setting rent prices they would lose money.
I am a Texan. The property taxes here are horrible. I pay $6400.00 a year (Harris co, MUD and ISD). On top of that I pay $1100.00 a year for insurance on my house and $660.00 HOA. The average rent where I live is $1200.00 for a 1100 sq feet apartment. We are 3 people (1 is a child) living in our house by the way. However the renters have access to same schools and services as us “Landlords”. Yes the renters pay rent that goes towards taxes and other expenses the landlord has no arguing that but what about families of 5 living in an apartment (3 of them children) sending their children to our schools (ISD is the highest tax which I paid $2700 this week) for the price of one? I agree with the author, they should carry their own weight around if they want to live in a nice part of town. By the way, I did research on a rental property near me, is 1 million plus sq footage apartment complex I wish I knew how many apartments has, it was assessed a $36 million value! by the property appraiser but only pays $1,200,000.00 a year in taxes (ISD, Harris co and MUD) or about 2.8%. So the renter is paying aprox. $330 a month in taxes (do the math). That is fair if is only 3 people in one apartment but more often that not there are 5 people or more living in a 2 bedroom apartment so they are not paying their fair share of taxes by a long shot.
It’s called property tax. Why should people who don’t own the property pay the tax?
You’re one of those people who thinks “fairness” means you get your way. But that’s not at all what the word means.
That’s why the OP is proposing a NEW law.
Yes it’s called Property Tax, and if that’s the Case why are so many other “fees/taxes/cost” Rolled up into it?
The Property Tax has been around in Texas since 1845. Years later, “somehow” the School Tax got rolled up into it. Frankly I don’t have a problem with the Property Tax I pay in Tx it’s about 1.02%, but when I add the ISD tax that’s 1.60%, so every yr I’m paying 2.62% of the value of my home, $15K, Which has been paid off for over 10 yrs now. Just to add to my frustration however, the PTs on my home, had it been in Va, would be $4000, In La it would be $4500. No my friend EVERYBODY needs to part take in the payment of ISD taxes in Equal measure, Everyone that has a SSN and Tax ID and/or a Green card. EVERYBODY.
I’m glad I’m not the ONLY one in TX that thinks this system of Taxing citizens here is faulty an stinks to high heaven. In FACT, just so y’all don’t think I’m just another disgruntled citizen talking outta his A** I’ll leave you with some Info that should give you some Food for thought:”In August 2014, the Travis County District Court ruled (as others before it) that the current school finance system is unconstitutional. The case has moved to the Texas Supreme Court. While the case primarily concerns the formulas that drive the distribution of state educational dollars, an unconstitutional finding from the court may prompt additional property tax reforms.” I pray to God it does.
“Another complaint concerns the property tax appraisal system and the methods by which appraisals may be challenged. A recently filed lawsuit by the city of Austin takes aim at these methods, arguing that they disproportionally benefit commercial property owners and, as a result, shift the tax burden to homeowners.
Don’t whine about property taxes while paying NO state income taxes. Its rude, its insulting. What this should teach you is that Texas’s tax base is regressive and poor people are paying far too high a share and that rich people use addresses there to avoid state taxes and don’t cover their share.
Real estate taxes are based on value of the property. If you choose to live in an expensive community, with low density in your unit then you have to pay – the fact that a 5 person family also chooses the same but has a higher density per unit just shows their frugality. My time in Tarrant county showed me that purchase prices were low, compared to the other states I’ve lived in. Look at your overall costs compared to other places and you will find they align.
“What this should teach you is that Texas’s tax base is regressive and poor people are paying far too high a share and that rich people use addresses there to avoid state taxes and don’t cover their share”
Great point! I had not thought of this. Thank you.
It is pretty distasteful to see mega-millionaires and billionaires leave cities and states that helped make them rich during difficult times. Feels disloyal and I’m very pro-loyalty.
Homeowners build up equity on the properties they own. Renters help build up equity for the property owners they rent from! Why should renters be charged an additional tax on top of that?
FS, you just sound like you’re thinly veiling animosity towards renters because of 1. a perceived (but non-existent) advantage that you can never get as a property owner, and 2. a mental over-generalization of who renters are and what they do.
To address the former, let’s dive into a really brief example. Landlord Alice has a property with 5 units, the mortgage is $3000/month, property tax of $500 a month, all other associated costs total $1500/month, and she’s aiming for 5% profit per unit per month. To break even on the $3000/month mortgage divided out over 5 tenants, each tenant needs to be charged $600/month. To break even on the “all other associated costs”, each tenant needs to be charged $300/month. At this point, we’ve got a total break-even rate of $900/month before we include property taxes. Alice does not simply add 5% to $900/month and then set the rent at that price, she would be losing money if she did that due to the cost of the property taxes. So she factors in the cost of the property taxes ($500/month) divided out over 5 tenants ($100/month). She adds this cost of property taxes into the monthly rental rate, totaling $1,000/month to break even. After including the price of the property taxes for the entire building (which is divided up among tenants – every renter pays a part of the property tax for their building/property), she then adds the 5%, for a total rent of $1050/month per renter, which totals to $5250/month, covering all of her expenses, her mortgage, her property taxes, and netting $250 profit each month.
In this aspect, property taxes are being INDIRECTLY paid for by the renters. If the renters did not pay their fair share of property taxes ($100/month) [assuming Alice still factors the taxes into the 5% for simplicity’s sake], each tenant would now be paying $950/month, and Alice starts losing money every month. No landlord in their right mind would price rentals so low that they lose money, so by the nature of the business, the property taxes are included in the costs that are passed on to the renters.
To address the second point, you have repeatedly made broad generalizations about the traits, actions, habits, mindsets, and class of renters that, put simply, aren’t accurate for the group as a whole, and are probably more byproducts of the state you chose to live in than the way those people choose to pay for their home.
California is a terrible liberal shithole with awful taxation and endless masses of morons. These morons literally believe that endless expansion of the government will eventually lead to some sort of utopia where the poor have no worries and there are no wealthy people – it’s a small slice of the pie of socialism.
I’m a Texan. I’m 22 years old. I make $160,000 a year as a cybersecurity architect, but I might switch into quant finance, which I successfully do in my free time with paper accounts as a hobby. I contribute no money to my 401(k) and choose to rent a moderately upscale apartment that, all expenses included (rent, parking, utilities, etc) costs me a mere $1,400 per month. I have a used Corvette and a used Nissan GT-R. I will probably trade the GT-R for a used Ferrari or an used Audi R8 in the next year. I live very comfortably, have a large safety net to deal with unexpected expenses, no student loans (did not go to college because I already knew more than what college could teach me by the time I was 18, and now my company is paying 100% of the tuition for me to go get my master’s degree).
I don’t rent because I’m poor, I don’t rent because I can’t afford a house, I don’t rent because I’m “bad with money”, I don’t rent because I’m part of the bottom of the barrel in society, I rent because I move for work regularly and want to spend more of my money on things that are significantly more important to my overall happiness – like high-power sports cars and investing in my future. I’m in the top 1% by personal income adjusted for my age, and as I simultaneously get several of my own businesses off the ground and move into mid-management before my mid-20’s, senior management during my mid/late-20’s, (or switch career fields into quant finance) that will likely continue for a long time. By 30, I have an active, thus-far-achieved plan to have a net worth in excess of a million dollars – mostly focusing on income growth and limiting expenses to 1. what’s important to me, 2. what’s necessary, and 3. things that will help my income growth. I’d like to (and plan to) retire by 45 to 50 on a portfolio in excess of $10m, and that’s on the conservative side.
I have never once voted for a liberal candidate, or any candidate who’s not explicitly pledged to lower taxes for that matter. But I rent. I rent because being able to use my current income on materialistic endeavors that make me happy, investments, and business development are all worth much, much more than some $600k shack in Dallas, a city I won’t be living in for more than a few years. The opportunity cost of throwing away my currently-limited income on a house that I don’t want, don’t need, won’t keep, don’t want the hassle of buying/selling/maintaining is massive, especially compared to the larger ROI I’ll see on 2 of the 3 things I put the rest of my otherwise-would-be-spent income towards.
People who vote for candidates who pledge to steal from those who succeed and destroy the country in other ways are NOT primarily designated by whether they rent or own. There are wildly intelligent, successful, fiscally conservative people who rent, and there are plenty of directionless, unhappy, liberal socialists who own homes (just go track down your state, county, and city government representatives, lol).
Please consider expanding your world-view of others outside of California. It’s a really shitty place filled with a lot of shitty people and you’re only deluding yourself if you’re using it as a baseline for what you think the rest of the country is like.
Great comment. No animosity at all towards renters. The 11X greater net worth of homeowners versus renters is a fact from the Federal Reserve. You can view it as you wish.
As an investor, I appreciate the dynamic between homebuyers and renters. Landlords need renters and vice versa. It would be foolish to think otherwise.
Currently 4 out of my 17 real estate crowdfunding deals are in Texas (San Antonio, Dallas, Houston). I’m betting on demographic shifts to Texas and other heartland states so that rents continue to increase so that investment returns continue to increase.
Add on Trump’s support of the heartland, I’m trying to allocate as much possible to heartland real estate and one day to heartland Opportunity Zones.
Once I adopted an investor mindset, it became much easier to see both sides of the equation. Let’s do this!
Related: Buy Utility, Rent Luxury: The Real Estate Investment Rule To Follow
I’m a renter in a market oversaturated with investors. No, we don’t need you. I’d rather own a home. But when 40% of properties are purchased but out of state rental companies it artificially inflates housing costs.
And you hardly sound like someone who understands both sides. Your argument is clearly that of someone who is not a renter. And thinks of renters as ATMs and little else. You have multiple posts arguing that renters should take on many of the costs and risks related to property while you take only profit.
Unfortunately, the return on rent is always negative 100% and you will continue to have a hard time buying a home with your thinking.
You want to at least get NEUTRAL property by owning your primary residence. Inflation is too hard of a beast to battle.
Your suggestion that others expand their world view will be interesting in a decade when you don’t have half of what you think you will have professionally. You’re 22 and already dissatisfied by a career you skipped college for. If you express the hubris you do here in the work place you are likely tolerated for the moment, but you’ll be dumped to the trash when the next wunderkind comes around. You won’t make middle management with that attitude towards the college educated group. – well you might but it will be at some little company that will fold up as soon as the boss has an affair with her personal trainer and her trophy husband takes her for half the business then runs it into the ground. Why would you want management anyway? Sitting around setting goals for others instead of being the tech expert who makes more? Do you really want that? Seems to me that you have yet to actually examine what a manager does all day, all week, all year – it is NOT desirable to a technically competent person.
1%ers are not an age adjusted group, you are one or you aren’t. You aren’t. You’re top 10, maybe top 5 but its temporary. Industries chew kids like you up and spit them out far more humble. One of the thinks you clearly missed from not going to college is how to form an argument and defend it without bringing your own garbage into the discussion.
I support your choice to rent as it better fits your chosen lifestyle – the sillysamurai has he head up his arse when it comes to this topic, as you rightfully point out, but you have your head up your arse if you think we care in the slightest what you drive. Your attempt at bragging just shows how ignorant you are – unless you very poorly were attempting a simple sentence of ‘different people have different priorities, personally I like cars that show how small my member is and the flexibility of moving with little effort and less notice’.
BTW, I’ve lived in both CA and TX – TX has more shitty people with lower education/knowledge. The ‘natives’ are generally morons. You sound like an ignorant child. Seriously, you sound like a kid who has yet to experience anything and has no clue of that fact at all.
50% of your income goes to taxes? Boo hoo. Keep in mind it was as high as 93% in the 1950’s and guess what- there wasn’t the insane income inequality we have now. Sure, life wasn’t fair for everyone but can you say it is now?
Do I think we should raise taxes? Probably. Like California, morons destroyed Colorado’s taxing capability in order to “decrease taxes” and it sure didn’t help most of us. You imply you shouldn’t have to pay for schools unless you have children so I guess you believe there’s no need to educate anyone but your own. Good luck finding health care, clean restaurants, interesting entertainment, advanced research or anything worth talking about. I almost never drove anywhere for years so why was I paying for roads? I dislike fighting and but I have to pay for military spending-how can that be justified?
Federally we have misguided spending priorities and the GOP tax scams make them worse. I’d be fine paying more, if it were humanely spent.
It’s too late to be awake but I need to say one thing- reality shows it’s really the Republicans that tax and spend.
The writer is a moron. SF is the most in-equitable place to live because the indigenous natives to SF keep passing laws to make immigrants to SF pay more. These laws get politicians elected but hurt the economy and create all-or-nothing situations, even for the entitled indigenous ($400 rent or Ellis Acted and $4000 rent). If you tax renters, you just add yet another idiotic law that hurts new immigrants or Ellis acted natives. You also create a bigger demand for buying that would drive housing values up another 100% within a year.
Before you tax renters to make up the shortfall, try repealing Prop 13, rent control, owner-move-in restrictions, protected tenancy, minimum low income build requirements and everything else that destroys the free market in SF.
I rent in SF at market rates despite having millions in the bank and the #1 reason I do is because the repeal of any of these could crush market value. I also prefer to invest in growing assets not propped up by “only-in-Cally” whacked out policies. I see every politician hopeful trying to add even more and more policies to this balloon too. In 20 years 50% of SF will be the protected non-working-by-choice poor paying 1/10th of “market” and the other 50% will be the quarter million a year or penta-millionaires who pay the majority of taxes, with no middle class whatsoever. If you buy in CA, you’re married to your property because of Prop 13, for the rest of your life. If you leave after 10 years you’ve given up your future benefit and lost 10 years of investing in that benefit. It messes with home values, tax base, supply and demand, mobility, etc. It’s why smarter states passed anti-Prop 13 legislation right after Prop 13 passed in CA.
Sorry you missed out on one of the biggest real estate booms in history. But I won’t call you a moron. As I just sold in 2017 to lead a simpler life and stop paying 23,000 a year in property taxes. https://www.financialsamurai.com/why-i-sold-my-rental-home/
The point of this post is to make people who vote realize there is no free lunch. If you continue to raise property taxes, rents will continue to rise. Building more housing is a no-brainer. But since the majority owner homes, a law against homeownership will never pass.
“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)”. That’s why they still don’t pay taxes. The gap is still too large.
Renter tax is absolutely reduculas. The owner should be calculating the property tax as included in the rent charge. If they are not doing that, that’s not the renter’s problem.
Your resentment should not be towards renters in San Francisco – it should be towards Prop 13. The reason you pay so much in taxes is that your neighbor who bought 10, 20, 30 years ago is paying a fraction of what you are. I currently rent in SF with my wife. The current landlords inherited the home from their parents about 20 years ago and they only pay about $1100 in property tax per year. My neighbor who bought his house last year and paid $1.1 million pays around $11,000 in taxes per year. How is that fair? This law also applies to commercial properties. Read about it here: https://www.evolve-ca.org/prop-13-facts/. I don’t quite agree with their platform because they are only trying to change prop 13 for commercial properties, but I think it should change for residential too.
And my wife and I would love to buy, but we don’t have enough for a down payment. Our rent of $4200 per month simply consumes too much of our income and it will be at least another 5 years before we can afford a down payment. (Well, not just rent – we also have student loans and ridiculous income tax). Even if we somehow managed to find a rental for $1K cheaper per month, that doesn’t help much in a city where homes cost over $1M and we need $200K for a down payment. And we have a combined income of over $250K per year! We don’t spend our money frivolously either. We are squeezed out in the middle. But we love living in San Francisco so we put up with it.
And I resent your comments that renters just vote for what they think sounds good. Do you think we are that naive to not understand that programs cost money? I certainly did not vote for any propositions that would increase government spending just because I thought they sounded good.
Furthermore, do you really think that any landlord does not pass the cost of property taxes to their tenants? I actually own rental property in Phoenix and I certainly increase rent to cover increases in property taxes.
And as a renter paying I do envy the tax breaks that you get as home owner. Because I can’t afford to buy, I don’t get the same tax breaks that you do. Because I know that I am ultimately paying the bills for my landlord — for property taxes, for their mortgage (if they have one), etc.
You seem to be arguing for a dwelling tax to replace a property tax, so that whomever resides in a home would pay the tax. I’d be down for that, if it provided me with an equivalent tax break that my landlord currently gets.
Here’s another fun fact. For my rental property in Phoenix, I paid $270K for it in 2010. I pay $2600 in property tax on it per year. Is it fair that I pay more in property tax my landlord in SF? The market rent for my rental is $1800, yet I pay $216 per month in taxes where as my landlord here pays just $91 on a rental property that pulls in $4200 per month? Granted, these are different jurisdictions, and I compare only for example. But suppose my neighbor decided to rent his house out. Is it fair that he would be paying $916 per month in property taxes?
All good points.
Check out my latest post on the subject for 2017: Why We Should All Embrace Higher Property Taxes
A residential owner who rents the property out should have to pay current value property taxes. Protecting grandma from being taxed out of her home, protecting people who have lived in an area for generations helps keep the area stable, both are good policy. Protecting small businesses makes sense to also keep taxes lower for them, small businesses are the backbone of this country. To allow someone to claim value based on original purchase when they themselves do not actually live there nor operate a business is an abuse of the intent of the bill, is it not?
I’ll echo what some others have mentioned and comment that property tax needs to be done away with entirely. There is no such thing as property ownership in the US; you merely rent it from the government for a time. The moment you stop paying your property tax (government rent), they come and take your land. Senior citizens are routinely taxed out of their homes as taxes increase and their post-retirement incomes do not. This fundamently flawed system has got to go.
You seem like you have never thought about what property taxes pay for. Where will money for municipal roads come from? Police and fire services?
Why do so many anti-tax people have only one argument against taxes: “I DON’T WANNA!!! WAAAAAAAAA!”
The flaw could be resolved through laws that don’t allow property taxes to rise more than the general rate of inflation unless the property is sold or used as a rental property. Michigan has several protections for owner occupied properties. I’m sorry of your state doesn’t care about grandma.
Residential property taxes should be done away with entirely. People need a place to live, and to tax someone solely for owning a residence should be unconstitutional. Take the revenue in the form of state income taxes, sales taxes, even gasoline taxes if you have to. Any property zoned for commercial use could still pay property taxes.
I raised rents due to property tax increases. I have to pay more for my home mortgage due to these increases. What if when i’m old, retired, house paid for, no income, social security collapses, and i have to either sell my home or take a reverse mortgage just to pay such a draconian thing as property tax?! One would have to forfeit their home if they could not pay the property taxes.
Achieving home ownership should be celebrated and rewarding in our society, not taxed at an ever increasing rate.
I am both homeowner and a renter. Isn’t there a little flaw in the argument? Each renter pays property tax, in the form of increased rent. My landlord of multi-family unit pays the property tax on the unit I am renting and passes down the cost to me in terms of higher rent.
If all renters would have to pay property tax, wouldn’t that reduce the tax burden on those landlords? Certainly govt. can not expect double taxes on the same property.
It is a major flaw in the argument. Any tax is shared by the landlord and the tenant in the form of higher prices, regardless of who it is levied on. This is part of the Economics 101 curriculum.
My goal is to encourage more renters to THINK before aimless voting to raise property taxes on homeowners who will ultimately turn around and raise taxes on renters.
There is NO FREE LUNCH. It’s much better to hold our politicians ACCOUNTABLE for their excessive spending.
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Guys, just so you all know, Sam isn’t actually advocating that tenants be handed a tax increase. He’s just making the point that one shouldn’t demand that the government institute new programs–and thus new spending–without accepting the need to pay more taxes. He’s even said in another post (the one about how you shouldn’t use a Roth IRA) that one of his arguments against it is that you are giving the government more money to waste, so he doesn’t really seem like he’d suddenly be demanding more taxes.
Personally, I’d like to see less taxes for everybody, but this would have to come with less government spending. This doesn’t necessarily mean getting rid of food stamps tomorrow, but it does mean cutting back on our mindset of “everything is the government’s responsibility”. It also means cutting back on our foreign policy; I’d rather the government spend our tax money here at home than dealing with Iran and ISIS, handing it over to Israel, destroying/rebuilding Iraq, and just generally meddling in the affairs of the Islamic world (what the hell is our fascination with the letter “I”!?).
My point is, well, that he’s just making a point. I don’t think Sam wants to see anyone’s taxes raised. But at the same time, if you are the type to demand more programs that require more government spending (whether you are a hardcore leftist that thinks that the government should hand you a living wage worth of welfare checks or are a raging neocon that is angry because we haven’t bombed any Middle Eastern countries in the last 45 minutes), then you should be willing to accept an increase of YOUR taxes, not on someone else’s. Unfortunately, most people in this country want to see government spending increase (for both good and not-so-good reasons) and have somebody else pay for it all. No bueno.
Sincerely,
ARB–Angry Retail Banker
Why do “lower taxes!” whiners never mention cutting military spending? Hmmmm….
Are you telling me, a 22 year old man who makes $12 an hour working full time, A man who makes just under $25,000 a year working full time, who has never been fired and has worked since 16, Who will have to cut down my working hours to go to school and live off of a lot less, Who forks over a third of every paycheck for a studio to live in should have to pay taxes on something I don’t own???
God you boomers are so spoiled. I am working my ass off in an economy that worse than any you lived through and you tell me I should pay your bills? Quit your bitching, If you can’t afford your taxes then you should have worked harder.
No, I’m saying to be careful voting on more government spending if you aren’t willing to pay for it because it results in higher property taxes and higher rents. That makes sense right?
Check out this post: https://www.financialsamurai.com/rich-spoiled-clueless-work-minimum-wage-job-at-least-twice/
Nah. You’re whining about paying property tax on YOUR property. WHy do so many property owners argue for a high cost of rent, because “we take on risk” and always Always ALWAYS push the cost of ALL the risk onto renters. Always.
Where is the risk to renters for renting a property? There is no down payment or mortgage to take out.
The numbers who ended up homeless after the crash in the aughts because their landlords couldn’t actually afford the property would tell you there is plenty of risk.
“Many properties that renters live in are assessed at yesterday’s or older valuations thus reducing the amount of property tax paid as a portion of rent and thus reducing the tax burden to renters, whereas most homeowners are paying today’s inflated, market rate valuations for their properties and thus are hit hard with large and rising property tax bills.”
When I got my tax bill as a property owner it did not matter if I owned the property as a primary user or as an investment property. My taxes increased because the property rightfully increased in value I then increased the rent to compensate. Homeowners who use their property as a primary residence get the tax assessment at exactly the same time land lords do and thus should change rent accordingly and might I add landlords don’t reduce the rent because taxes went down.
“Taxation with no connection to the properties being taxed is inherently unfair” first an foremost this is inherently wrong.
As I have explained before renters pay more in rent because property taxes are higher. Find me one instance that this is wrong.
When my renter asked me recently why I increased his rent I said it was because my cost of maintaining the residence has increased because of property taxes. You know what? He was more than happy to pay more.
“I note that renters in general seem to have lots of disposable income whereas most homeowners are impoverished with in disposable income.”
Please give some documentation. Last I checked a landlord would be bad a one at best for charging less than what the property cost to maintain including taxes.
By your argument we should be back to mid evil times when we had had lords “who owned land” and peasants. The peasants don’t have a voice because they don’t own land. We all know the lords were wealthy and had all of the “modern” comforts back then. The peasants were poor at best. As in they had nothing and were forever indentured to their lords. We might as well talk about your ideas and slavery. Indentured servants had no say and they lived off the land they “rented.” This is viewed as universally wrong yet this is exactly what you want to impose.
Many properties that renters live in are assessed at yesterday’s or older valuations thus reducing the amount of property tax paid as a portion of rent and thus reducing the tax burden to renters, whereas most homeowners are paying today’s inflated, market rate valuations for their properties and thus are hit hard with large and rising property tax bills.
Property taxes in California and other high cost states are outlandish and bankrupting anyway, with school bonds and special assessments constantly being added to the annual tax bill. I note that renters in general seem to have lots of disposable income whereas most homeowners are impoverished with in disposable income.
And it is true that in various studies it has been shown that renters tend to support new school bonds and other special assessments (because they don’t directly see or pay them) whereas homeowners are much less inclined to support additional taxes. Which is why historically you had to be a property owner to vote on property taxation issues (which seems much fairer); today, not at all, so people other than those will be affected by them get to vote to raise other people’s taxes (very unfair).
Taxation with no connection to the properties being taxed is inherently unfair. Lets go back to the old way of doing things where you had to own a property to be able to vote to increase taxes on it. Most elections for school bonds, special assessments, and add-ons would then fail, just like they used to.
God help us struggling California, New Jersey, New York, Florida, and Texas property taxpayers as we sit in our kitchens eating rice and beans, driving 20 year old cars, and buying nothing, ever!
You seem to miss one important thing about property taxes. If a person is renting they then pay the landlord. the landlord then pays property taxes. The renter’s property taxes are then baked into the rent they pay. Renters do in fact pay property taxes through the landlords.
I am both a renter (primary home) and a homeowner (rental property) I do pay my FAIR share of property taxes. I charge my renter more because of property taxes and my landlord asks more rent because of property taxes.
Your “goal” cracks me up. First off, find me a study where renters are demanding property owners to pay more taxes? Second, find me a study saying renters don’t expect rents to rise because of higher property taxes.
I love your site and I’ve gleaned some great advice from it but stick to the facts and don’t look down on those who you think pay “less” taxes.
Estaban–Hoorah! Exactly what I was thinking. The property the renter lives on is taxed. To tax both the owner and the renter is double-dipping. And does the author really think that cost is not factored into the rent? And the owner gets the advantage of having equity from the bottom line costs.
By the way, the management of our apartment complex clearly charges a certain amount to each renter for property tax.
Exactly, my (friendly) landlord recently raised my rent. His told me that property value went up and now he is paying higher property taxes.
The renter doesn’t always pay enough to cover the property taxes; it depends on the market. Landlords will often rent for less than enough to cover their mortgage, let alone their mortgage plus their property taxes, if that’s what the market dictates. Landlords have no guarantee that they’ll be able to cover all of their expenses… and if they can cover all of their expenses and then some, then they’ll still charge a market-related rent, not one that is directly tied to their own expenses. Either way, it doesn’t really make sense to say the renter is “paying the property tax”.
The owner pays the property tax; the rent, which is not set according to the owner’s expenses, but according to market conditions, may or may not be enough to cover the property tax but in either case is unrelated to the property tax.
(Keep in mind that a landlord always has the option to [try to] sell, or to leave the property vacant, but at the end of the day a landlord who isn’t getting rid of a property has to compare the rent he can claim to the $0 that comes from leaving it empty, NOT to how much he needs to cover all his expenses and make a profit).
100% agree. Renters seem to think landlords can just charge whatever they want and make up the tax increase by taking their tenant’s money. It’s an absurd way of thinking. The market clearly dictates how much money a landlord can take in for their property. Landlords could realize a tax increase but if the market doesn’t allow for a rent increase, the landlord foots the bill for the entire tax. There are many rental markets across the nation that are financially desirable for tenants. Where owning at current values would cost hundreds or thousands more a month than renting.
You’re missing the key point here. There is no free lunch. It is the government who is raising rent on renters. People are misguided when they vote to raise property taxes because they want XY and Z and think they will not have to pay for it.
This is not an endorsement of the common property tax scheme, but I turned this fact to my advantage by buying a home under the median value for my area. I pay half the interest and half the property tax relative to my peers who borrowed twice as much. Although I get a slightly lower income tax deduction, I don’t consider it to be a significant factor relative to the amount I save.
Also, I purposefully bought in an area that is known for good local schools. Otherwise, in the city I work, my kids would’ve faced a lottery to get into the good schools. Funny how government structure can have great influence on such important life decisions.
I once rented an apartment where I received an itemized bill . the rent was broken down into taxes paid and rent. Essentially the renter pays and the landlord collects. If you feel the renter is paying less you may raise their rent and let them decide if they want to stay or go.
You can also give your renter an itemized bill so they can see how much you are paying to Uncle Sam. Its not like the renter earns capital gains when you sell your property for a profit.
Its your prerogative to use the rent as you choose. Use the same logic that you use in stealth-wealth. The have’s don’t have to rub it in the have-nots faces. A little empathy for other humans in different life situations goes a long way. Being a landlord is messy business and requires people skills and empathy in liberal measures. if you don’t feel upto it you can keep your properties unoccupied and not have a worry :-)
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Hi – Your point that all of the residents of a city should pay for its infrastructure and services is well taken. However, property tax is a tax on the value of the land and construction on it, so it would be unfair to tax anyone who does not own that property. The value of a property in San Francisco is derived not just from the construction of the home, but also from elements like the clarity of air and the quality of the bus system. If someone were to build a steel mill next door or eliminate a bus line on the street, then the property value would decline. Property taxes are meant to pay for the value derived from the surrounding amenities.
In New York city, we have had an additional income tax on city residents since 1966. For reference, the income tax accounts for about 20% of the city revenue while property tax accounts for 40%. This is necessary due to the large proportion of renters that live in the city and the massive infrastructure that must be maintained. I rent an apartment in this city, and I have no qualms about paying this tax to support my subway, schools and whatever else the city needs.
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%.
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.
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.
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.
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.
I’m down with getting rid of property taxes and significantly raising sales taxes!
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.
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’.
My state recognizes that renters pay property taxes and gives out renter rebate checks for those who meet income requirements.
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.
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.
Take care Greg! But, before you leave, can you tell me what search term you used for this post to pop up? :)
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.
And what do you say to the single property owner who does not rent out his/her house who pays property taxes?
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.
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.
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!
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!
I thin the tax rules for landlords are pretty favorable, all things considered.
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.
I’ve followed up this post with another one on How To Raise The Rent Guilt Free I think you will enjoy.
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.
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.
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…
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.
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.
I know this is a necro comment but…. I don’t benefit from the mortgage interest deduction because my interest is too small a percentage of my income! Wait, I bought a house I can clearly afford and so I can’t deduct it? WTF.
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.
Read this https://www.financialsamurai.com/2013/04/17/tips-on-raising-rent-without-guilt/
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?
Read this: https://www.financialsamurai.com/2013/04/17/tips-on-raising-rent-without-guilt/
This post is what this post is all about.
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!:)
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.
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.
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.
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.
Are you serious? Rental properties INCLUDE the tax fees in the rental payment. To think renters arent paying taxes already is ridiculous.
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.
You do what you want with the money you raise from rent. You can buy a laptop or you can pay for property tax.
At this point, it’s like you’re trolling or you are just retarded. There may be rent control, but there is also a cap on the increase of property value used for tax purposes. I’d like to see a break down of how your expenses go up by a factor of 3 every year.
Quit whining. No one is forcing you to own a rental property. If you don’t think you’re making enough money this way, sell the property and do something else. No one wants to hear you cry about your first world problems.
From your comments, it looks like on hindsight you realized you were dumb and that your article was about “being disrupting and making people think”.
Hi Ankush,
Check out my latest post: Why We Should All Embrace Higher Property Taxes
Sam
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.
You sure? I used my rent payment last month to pay off some principle mortgage debt and buy a laptop.
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
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.
Renters should pay their fair share of school taxes. I am a homeowner in a Texas and I pay close to $5,000 per year in school taxes and I don’t even have children in public school. While, the apartment dwellers pay no school taxes. I wonder how the apartment owner is assessed.
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?
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?
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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.
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.
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.
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.
I’ve owned and now rent (ex wife got the house). The rent covers the owner’s mortgage and the owner’s tax bill. Thus part of my rent pays taxes.
You propose I pay additional taxes on top of that. That’s double taxation. A good way to keep the poor that way.
I’m trying to save and be fiscally responsible, but rent, insurance, car, food and utilities consume my income. My only choice is to study hard and try to get a better job. In this depressed part of the country, that means I have to move. Which costs money. It’s a hard hole to dig out of.
I like your this, “only choice is to study hard and try to get a better job.” That is a good attitude!
Check out, Income Profiles Of Financially Free People
and
Spoiled Or Clueless? Try Working A Minimum Wage Job As An Adult
My point of this post is to make people understand that there is no free lunch. You can’t, as a renter, ask for homeowners to pay more for government programs b/c homeowners will simply pass the cost on to the consumer. Instead, we should all think about pitching in and focus on the cost benefit of ever increasing spending of “other people’s money” which ultimately ends up being your own.
This one feels a bit like you’re just trolling- but I’ll bite, because it SOUNDS like what you’re really upset about is rent control.
On that subject, I’m firmly on the side of governmental price controls ruin things very quickly. If rents outpace incomes, we have a problem. Holding down rents and trying to ignore the problem isn’t really an answer. I believe that the minimum wage is another form of price control that hasn’t worked either- 60 years of a ludicrously low number has likely under paced where I suspect entry positions would be without such a stupid, public target for companies to aim for. “We’d love to pay you more, but this is an entry-level position, so seven bucks seems reasonable based on what the federal government has required.”
But all that is a separate issue from property taxes.
Property taxes are assessed to pay for services, and each property pays them. Now, you could change the system to make the occupant pay the taxes; however, that creates a potential conflict of interest. Who decides when it’s OK to reassess the property value for the purpose of the tax levy, the owner or the renter?
I do agree with you that there’s a problem with the mortgage interest deduction. It should be zero; it’s not the governments job to create incentives for home ownership. Your incentive is to keep a portion of your monthly payment in the form of principal growth. If you disagree, you should rent! Why should the people subsidize your wealth creation? Next, you’ll want me to subsidize replacing your water heater, because renters don’t have to do that!
If you own rental property, property taxes are a cost of doing business, just like buying raw materials or paying workers in any other business. Now, you get to charge whatever you want- and renters have the right to pass on the deal. You have the right to raise the rent, once the original contract is up, in accordance with the contract terms. Any losses in the form of property tax increases during the tenure of that contract are yours to absorb, just like any increases in is value must be deferred until you sell the property.
Renters can move when you raise the rent. If you’ve raised it above the market rate, they probably will. If you have good renters, who pay on time, don’t break stuff, etc. it’s possibly in your best interest to keep their rate reasonable. If they move out, you’ll likely have a period of missing income, and you may not be able to acquire as good a rental risk next time. That may also be incentive to keep the rate from spiraling out of control. Renters, have to decide if it’s worth the risk of rising rates to continue renting, or purchase a home.
That’s the downside to real estate investing, high initial investment costs and low liquidity. Again, much like any other brick and mortar business. Collecting the taxes to pay for the services provided is what the government should do. If property owners are outnumbered by renters, well; expect them to vote for lots of things that the owners are on the hook to pay for. That’s kind of the great thing about economics- as the value of owning rental property decreases, the delta between rent and mortgage drops. That leads to more home ownership, which leads to more invested community members, which improves property values… and the cycle starts all over again.
You worked for Golden Slacks, right? You guys love cycles- buy low, sell high!
Thanks for sharing your views. Several points:
1) I’m investing surgically in the heartland of America now through real estate crowdfunding platform RealtyShares and Fundrise because the coastal market is cooling and there’s so much more value to be had in Middle America. I no longer want to leverage up, pay more property taxes, and deal with tenants at age 40. $50,000 a year in property taxes is enough.
2) Real estate in America is so cheap compared to the rest of the world. It’s AMAZING more Americans don’t realize this, even if 64% of Americans don’t have passports.
3) I’ve learned to embrace higher property taxes, because that leads to higher rents. It all comes full circle, and everybody wins. I LOVE rent control b/c it artificially restricts supply, thereby increasing rents. None of my properties in SF are under rent control.
Thanks for contributing!
Sam
Let us take as an example an apartment building with 100 tenants and a landlord who pays his mortgage and tax from your rent.
This means that the city has 100 people using its services(Schools, roads, libraries, etc), but not everyone contributes their taxes to these services.
I don’t know enough on the subject for me to be confident in this argument, but if the tax the landlord pays is less than the tax that 101 people would pay, then renters would not be paying a fair share of the tax burden.
If however that is not the case and the landlord does indeed pay enough in tax to cover 101 people worth of taxes, then renters shouldn’t have to pay more in taxes.
Simple really, if you use services that are funded by taxes then you should pay just as much as anyone else using the services.
I’m a big believer in equality, and therefore I believe renters should pay a “Renter Tax”.
since you’re into equality, the renter should be given a portion of the appreciation value of the house.
That’s absolutely fair if the renter also came up with a percentage of the initial downpayment, paid the mortgage, taxes, and fees all these years. Remember, we don’t live in a Communist country. You’ve got to take risks and do the work to gain reward.
See:
To Get Rich, Practice Predicting The Future
Buy Real Estate As Young As You Possibly Can
Sam: Homeowners enjoy preferential property tax rates in most states – 36 states, according to the Lincoln Institute for Land Policy (lincolninst.edu). For example, in Michigan, the school property tax rate on rental property is 4 times the rate on owner-occupied primary residences. That’s over $1,000 per year property tax reduction on the median-value home in Michigan. When I lived in Michigan, my rented home had an extra $1,200 per year property tax because it was not an owner-occupied primary residence.
So renters in MOST STATES are already paying more taxes than homeowners, and getting inferior value for their housing dollar (“renting is where you pay a premium to enjoy temporary, impaired use of property, with nothing to show for it in the end”).
As for rent control, it doesn’t even exist in 48 states. New York and California are indeed different, and you probably won’t see rent control adopted in other states.
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.
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.
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.
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.
Thats just it-we down own anything anymore.The federal reserve is a private company.It loans out money to the government,who loans it to us.We then pay it back through taxes.The IRS is basicly a goverment sponsored debt collector.
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
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.
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).
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.
All costs are passed along to the consumer. Property taxes are ultimately paid by those living on the property.
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 $
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.
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.
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.
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.
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.
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.
Joe, you could be the first person to really agree with my proposition after 150+ comments! Nice!
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/
52K is a lot of money in taxes for one property. That’s like a $4 million building here in SF. Not worth it. Let’s share the tax burden with renters.
More taxes. That is something we don’t need. Let the landlords raise the rents to pay for the taxes.
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.
How does a homeowner who lives in their home pass their property tax bill to tenants they don’t have?
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.
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.
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!
Nope. Homeowners will continue to pay their property taxes. We just need to encourage renters to also chip in for a greater community and nation overall.
OK, I guess I must have misheard you. I thought you said “reduce property taxes for homeowners”
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?
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.
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.
Show me your property tax bill, and I’ll show you mine.
As a renter, you dont pay property taxes.
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.”
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
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.
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.
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?
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?
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.
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.
I don’t quite understand why a renter should paid the insurance on the property in place of the owner, since this insurance is designed to protect the house’s value (e.g. cases of fire, etc.). As a renter, I wouldn’t expect the owner’s insurance to cover against the theft of my belongings in the rented house… I should get renter insurance for that.
As for the idea of renters paying municipal taxes directly, that is the norm in England – where it is called “Council Tax” and payable by the people who live in the property (whether owner or renter). Of course, the rental price has this taken into account. One disadvantage for the municipality is that they have to collect from more individuals (since some properties have short rents of only a few weeks or months at a time), and there’s a greater risk to them of non-payment (due to a poor tenant decision made by the owner, not the municipality). Owners of rental properties do pay the Council tax when the property is vacant, but the rate is usually greatly discounted for property vacancy. One area of unfairness is that capital improvements by the Council paid by renters might have a significant benefit to the owner rather than to the renter.
Since I don’t live in the USA, I don’t know whether owners of rental property are required to complete an extra form in their IRS tax return. In some countries, the business of renting is treated like a form of self-employment. The rental income is declared as income and the allowable expenses of that business are offset against the income. So your maintenance costs, insurance costs, property “taxes”, financing costs, etc. would be deducted off your rental income. In years that your allowable expenses are less than your rental income, you pay income tax on the difference. In years that the expenses are more than the income (e.g. long vacancy, high increases in property taxes, boiler breakdown and replacement, etc.), then the difference can be carried over to subsequent years and offset against a later profit (or capital gain at time of sale). So if your property taxes go up faster than the market will allow you to increase rent, then the early losses can be offset against the later profits gained when you’re able to adjust the rent (or cut other costs).
If you get into a business, surely you acknowledge the costs and risks involved. You chose when to enter and when to exit and at what price points you’re prepared to accept. You know that your investment property’s value is directly linked to the investments made by the surrounding community and must to prepared to pay the costs involved in maintaining that standard so that your property doesn’t lose value.
If you’d rather avoid municipal taxes then surely you’d go buy a piece of undeveloped land in the middle of nowhere. Develop the area. Get some like-minded people to follow your lead. Negotiate and accomplish the establishment of your own independent municipality. Make your own municipal bylaws and set the homeowner property taxes to 0%. Do you think people would flock to your community? Do you think everyone will have the same priorities on how to develop the area? Would investors be able to find renters prepared to move to the area if the only taxes were levied against those in the community who are renters, giving a free pass to all the owners. Would you not have simply created a modern serfdom?
I applaud your ideals behind this article, however I suspect you could have formed a more intelligent article that would have raised a far better debate without devaluing your integrity and coming across as obnoxious.
It’s hard to understand if you don’t live in the US and rent or own. There’s great property in San Francisco right now. Perhaps make some investments and join the party! San Francisco is the cheapest international city in the world.
Thank you for that explanation! I have heard of Council Tax but had no idea how it works.
Rental owner income taxes in US work pretty much the same as they work in England; owners use specialized (additional) tax forms where their financing and operating expenses are deducted from their rental income.
In US, government K-12 schools (I think this corresponds to schooling through your A levels, but not sure about that) are called “public” schools (confusing, eh?) and usually are funded through local taxes. In many but not all states, owner-occupants enjoy lower property tax rates than owners of non-owner-occupied property, including rental, commercial, retail, and industrial property. In some states, municipalities (cities and towns) have their own school system, and in other states there are “school districts” which often cross municipal boundaries. The so-called “one room schoolhouses” of earlier days were consolidated into larger school districts with fewer but larger schools, e.g. a “high school” here often has three or four grade levels and roughly 1,000 students
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.
No need to even formalize a rent tax of any kind. The market will take care of all of this. When a landlord buys a house to rent, they know they will have to pay property tax. As such, they will only do it if the market rent is enough. If not enough people buy houses to rent because of this, rents go up until they’re enough. There’s your “rent tax” right there.
If the market is taking care of this, why is the government getting bigger and bigger with Obama? Why doesn’t he let the market decide instead of raise taxes on one group and not another?
Taxes here… taxes there… taxes everywhere! Simply because government spends a lot. Why don’t they just cut down on unnecessary spending? We are doing it to save our money so why don’t they? Is it because it is not their money?! Ouch!
Yep. When we get to spend OTHER people’s money, we are definitely more lax in our spending habits.
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.
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.
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?
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?
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.
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.
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.
After going back and reading most of the comments I think I see where you are coming from. And the confusion is coming from the wording. You are proposing a rent tax basically.
Property tax would be incorrect to say because the property tax is paid by the owner of the property. You don’t pay my yearly car tag fee just because I let you drive my car each month. It is registered in my name and I am responsible for the taxes on it.
So with that said, I think a rent tax is a bad idea. Taxes suck and the government is bad at budgeting.
Thanks for seeing my side of it!
Taxes do suck… yet, if taxes suck so bad, why did people vote our current administration in, who wants to spend TRILLIONS, and raise taxes to pay for it?
Democrats were voted in because of the backlash against republicans. Voters wanted some more constraints and the dems had a very polished, well educated, candidate to present. I think the American public was ready for the government to be more hands on after being too hands off with the economy. But one does too much one way and the other does too much the other way. I think the only way to keep our economy from rocketing back and forth is to do away with the 2 term limit. Let’s vote someone in who wants to make changes for the future and see them come to past.
Well, perversely or not, I believe people DO want to pay a Renter Tax and help shore up our countries budget deficits, which is why people will re-elect Obama again, who wants to raise taxes in some shape or form.
Renters do end up paying property taxes in the form of higher rents. A house with a $182/month mortgage is renting for $650/month out here. No need for an additional tax.
For YEARS I have been saying that leases should EXPLICITLY break out the PROPERTY TAXES as a separate component of a renter’s obligation. (This is common in commercial leases but almost unheard of in residential leases.)
I actually got one previous landlord to agree to this (I had a political axe to grind) and I calculated that I was actually “contributing” MORE than my fair share because there was an extra $1,200 of property taxes specifically because the house was a rental property. (There was a separate “nonhomestead tax” on the house, in addition to the basic property tax rate on all homes.)
What does Sam think of nonhomestead taxes? Should rental properties be taxed at a higher rate than owner-occupied homes?
Sure! Let’s charge a higher renters tax than what homeowners pay in property tax for their own home.
Stop calling it a Renter’s Tax, and just label it an Occupancy Tax, like governments do on hotels. Hotels factor in their property tax into how much to charge to rent a room for the night, then the government tacks on 10% or more to the renter to occupy the space.
So if you want a “Renter’s Tax”, then charge 1% of rent and have it collected by the landlord each month.
I don’t even think Sam is for a Renter’s Tax. What he’s probably for, is all citizens feeling the hurt of paying taxes. When we buy goods at a store, we physically SEE the added sales tax. When we register a car, we FEEL it when we write a check each year. But when taxes are “included” in a cost (rent, for example), that ‘hurt’ is absent, making it easier to blame or pass responsibility for taxes on to another subset of people (the “rich”, property owners, etc.).
If renters had to physically SEE property taxes they are paying each year separated from their rent, they have that proverbial “skin in the game” mentality, and would be less apt to endorse raising taxes on property owners, the ‘rich’, and any other group of people they feel can afford paying more taxes.
I think Sam’s point is the “skin in the game” argument — More people who have to contribute to each type of tax (sales, income, property, use, vehicle, etc.) = Less class warfare, less nanny-state reliance, less pass-the-buck mentality, and greater empowerment of the individual.
The bigger the government, the smaller the individual. “Skin in the game” empowers individuals while decreasing the role of government.
Am I on to something here, Sam?
P.S. – not sure if a Renter Occupancy Tax is necessary. Maybe residential real estate should be leased Triple Net just like commercial land? That way homes can rent the true value, and renters could physically see how much extra is tacked on each month for property taxes, HOA fees, etc.
P.P.S. – Texas’ property taxes are 2-3% as well. Very high, but no state income tax.
Jason, you are SPOT ON in your assessment. Well done! I might have to quote this in a follow up post for clarification as I can sense people are pissed by this proposal.
Well guess what? Welcome to the world of millions who pay 33% and 35% marginal federal taxes already while 45% of Americans pay no Fed tax, and others who want to raise taxes on those in the highest brackets!
I believe that in most places, politicians would not agree to this Renter’s Tax.
The dirty truth – an inconvenient truth – is that in many states, rental property is taxed at higher rates than owner-occupied homes. It’s called “split roll” property tax. For example, in Michigan, the school property tax rate on rental property is four times the rate on owner-occupied primary residences. It’s called “nonhomestead tax.”
The political rationale is that rental property is a business, and should (for some reason) be taxed more than what apple pie-baking homeowners (who should be secure in their homes annd not taxed out of them) pay.
Establishing a Renter’s Tax would explicitly place the tax on the renter, and undermine the “split roll” property tax structure that unfairly taxes rental property.
It would be difficult to argue with a straight face that renters should pay a larger property tax than a homeowner in the same property.
But I would love to see Sam try it.
It’s important for all homeowners to understand all that’s going on and to continue raising rents with every single property tax, and xyz tax increase. Too many property owners feel bad about raising taxes only to find 10 years later their tenant is paying way below market rent and can’t get them out.
In SF, 65% of residents are renters, so the politicians keep throwing out all these spending promises that are charged to homeowner’s in the form of more property taxes. Rents must go up if there is no Renter Tax so we can equally share the burden of our spendthrift society.
The logic in your replies is so flawed. If renters don’t contribute toward property taxes, then that is the fault of the landlord for not including it in the rent calculation.
You claim that renters don’t write checks to the government to cover property taxes, which is true. But often renters also don’t write checks to the water/sewer/trash provider or for the HOA/building fee. That’s all taken care of by the landlord, and should be included in rent as well.
If you want to take vacations with your rental income, like you repeatedly mention in the comments, then raise the rent! You can’t say ‘Oh, I’d rather take a vacation than pay the tax on the property I bought, knowing full well I’d have to pay tax on it, so I’ll recommend that other people pay tax instead of me’. You claim that ever increasing taxation is not the solution, but then write a whole post about increasing taxes. Go figure!
It looks like I might have to stop subscribing. The illogical responses make my head hurt.
Jen, then please stop subscribing. Yes, of course you feel bad, annoyed, irritated and object to the government proposing a Renter’s Tax. Welcome to the world of half the American population!
How does a homeowner raise the rent to pay for property taxes if the homeowner lives in their own home?
Completely ridiculous as increasing taxes in any shape or form will only make sure that there is less productivity and less economic growth. The deficit is out of control but even taxing 90% of all american’s wealth won’t make much of a difference if you don’t address spending cuts. Cut spending and the deficit isn’t such a big deal anymore.
I don’t like the idea of a renter’s tax, nor do I like the idea of a property tax either. I get the point you’re trying to put across but I’m sure most of it will fly over people’s heads.
Gotcha, so I take it you are a Republican!
Do you think Democrats who read this post will realize that ever increasing taxation is not the solution?
Here’s where the landlord would love this one. Property taxes are against the property, meaning they are owed if there is or is not a renter. If we stopped charging a property tax and charged an equal renter’s tax, there would only be tax charged when there were renters. This would lower the risk for the landlord and reduce actual tax paid because empty units would not have a renter to tax.
This would increase property speculation and make holding on to empty and abandoned buildings more attractive to the landlord. Failure to pay property taxes allows the property to be removed from the delinquent landlord and put the land to a better use. The property is a tangible item that serves as a collateral for the collection of the tax. Delinquent collections from renters would be much harder than from delinquent property owners because there would be no property to seize as collateral or penalty.
The upside would be a developer would be more likely to speculate on building additional units because he would not be taxed on those units until renters were present. An increase in the available units in a market area would tend to push market rents down; however, without a penalty of property taxes on non-rented units, the land owner would be more inclined to wait for renters that pay higher rents than accept tenants at lower rents to cover their expenses, such as property tax.
Overall I see this proposal as Win for the Landlords and lose for everyone else, of course other than the IRS army of accountants/auditors the government would need to track how many tenants every landlord had over the course of the year and how to determine the actual amount of rent that was charged based on the individual contracts. The cost of increasing governmental oversight would be another burden placed upon the public requiring MORE governmental involvement and expense, i.e. more taxes.
For the record I generally support a simple flat tax with some relief/incentives to help move people out of poverty.
Hmmm, some very good thoughts which I’ll have to spend some time getting my head around. I do with you on one thing though, and that really is the simplicity of a flat tax!
https://www.financialsamurai.com/2009/10/09/were-idiots-please-tell-us-a-flat-tax-is-not-fair/
If the landlord has any brains the renter is already paying the taxes indirectly. A renters tax should effectively lower rents.
That’s a pretty idiotic argument – a substantial portion of the rent paid by renters ends up going towards property taxes. Renters are obviously already supporting the community by paying a significant portion of the property taxes on the property they occupy. Obviously the exact proportion for each individual case is up to the landlord/property-owner – he or she can choose to raise or lower the rent so that more or less of the taxes are covered by the occupant, but in the end, all of the property tax costs are covered by either the occupant or the owner. Do you think renters should have to pay taxes twice on their living expenses (three times actually, if you count income taxes)? Once directly to the government and a second time via their rent? Regular owner-occupied property is only taxed once…
I hope I am slowly converting all of you to be against the discriminatory progressive income tax system we have in America! Love these responses!
Really? Are you oblivious to the fact that renters DO pay the property taxes through something called RENT! Or do you think millions of property owners are happy to operate at a loss? Renters actually tend to get the short end of the stick because we’re often paying mortgage+taxes+premium.
I think we should charge bloggers an extra tax because they can work from anywhere. Oh, we should also charge cowboys a “hat tax” because they’re hats are so much bigger than the rest of us.
Huh? When was the last time a renter wrote a check to the government to pay property tax? What u smoking cuz I want some!
But, so long as you are consistent and against the government RAISING taxes on higher income earners next year, I’m all for you believe that renters shouldn’t pay a renter’s tax!
Cheers
There’s not a renter’s tax for the same reason that no one knows what the gas tax is in each state; the costs are passed on to the consumers. Sometimes the costs might not be passed on to the consumers because the property owner is breaking even due to depreciation and mortgage interest deductions, which allows them to cash flow the property with a lower return. No matter what, there is tax being paid on that property and that’s what matters. If renters aren’t having the costs passed on to them, which I highly doubt, then it allows for greater savings toward a down payment on a house in the future. This would allow for a larger number of home owners and property taxpayers.
And if we wanted to lower the consumption of fuel, and make ourselves more enviro friendly, separating out the fuel tax would be a good idea.
A renters tax is an interesting concept. I never thought about the fact that renters get away without paying property taxes. LOL Sam I will support your gubernatorial bid.
I don’t think this is a good plan, or one that is well thought out. What about students who rent apartments? Or people who rent because they couldn’t afford a house (just because you claim that most people don’t rent because of this, doesn’t mean those people don’t exist)? How about subletters? People who are only staying in a state temporarily? People who buy a house know that they are getting themselves into some serious business, and they choose to go through with it, because it is an attractive deal for most of them.
Ownership implies responsibility, and in this case, responsibility is paying taxes on your property. When you own a house, you can do almost anything you want there (within the law and reason, of course). If you are a homeowner and want to have a garden or clothesline or grapevine in the backyard, no one can stop you. If you’re renting, you’re bound by the rules and regulations set by the property owner, and unless you’re renting a cottage in rural farmland, those things are usually restricted.
You may not perceive the system to be fair the way it is now, but this alternative seems even less fair to me.
Are you saying that renting implies no responsibility? This is what’s wrong with many communities and why many, if not all condo complexes LIMIT the amount of renters in a building. It’s because rightly or wrongly, renters are perceived to care less about their environment and the property they are renting in.
Creating a renters tax might make renters more responsible for the betterment of the community.
I’m fine with paying a renter tax to help out the budget. I’d also like to see the homeowners mortgage deduction killed off for the same reason. Then renters and owners will be on equal footing. Neither gets a deduction and both pay taxes to pay for local services.
And to be honest, it doesn’t matter if property tax is already rolled into the rent. Market forces will make an adjustment. Rent follows income and if a global tax reduces the amount renters can pay across the board, rents will go down across the board.
No way mate. We need the mortgage interest deduction to stay to subsidize homeowners and shield other income. Homeowners are already getting taxed enough. Need to raise mortgage indebtness from $1.1 million to double!
wow. you call people “pro-renter,” but you are “pro-owner.” look in the mirror.
If renters pay a tax, will they be able to take a deduction like homeowners do?
Will homeowners lower rent? No.
You are a broken record. You keep saying that “landlords aren’t passing off the property taxes to their renters and that they could be using it for vacation.”
Your commenters have made very good points and I think your delusional if you don’t think that landlords are passing the buck to their renters. This is (as many have noted) simply good business.
Homeowners aren’t paying property taxes for the privilege of have a voice in society…. they are paying it because they’ve bought an ASSET. All assets are taxes. Whether or not you agree with this is fine. I don’t necessarily agree with it.
But, be real. You sound like a 5-year old stamping your feet when you complain about renters not paying “property tax.” They don’t own anything to be taxed!! Duh.
This has been discussed but I will repeat it so that you can get a better idea of the number of people against this.
Renters are paying property tax by proxy of their landlords, this cost is being included in the rent or else the landlord has not managed their situation properly. It is in this way that the renter is contributing to the local/state government.
If you abandon the property taxes on rented property and pass that on to the renter, then you are giving the property owners a free ride to own property without the taxation that other property owners face.
I see that you are comparing it to a heap of other situations but I do not buy the argument that the taxation on bowling shoes directly relates to the taxation of property.
I will repeat myself too. Renters should write an explicit tax based on the amount of rent they pay a year so they can feel good about their contribution to the community. Let’s let the free markets then decide what rent the landlord will charge once this is implemented.
When we all explicitly contribute, we all have skin in the game and feel it!
The property owner of the rental pays the property taxes, and includes that cost in the rent bill – this is why some states give property tax rebates to renters (ex: the homestead rebate in NJ (that probably is being done away with for budget reasons). So I fail to see why you should be double taxed on the same property – the owner pays the tax because they own it, then the renter pays another tax because they live there? So then homeowners too would need to be double taxed, once for owning the property, then the second time for living in it?
The idea is that renters pay tax for the services rendered on their rent, just like you pay a tax for renting a car, dvd, bowling shoes, etc. Makes sense. Let’s empower renters by taxing them explicitly and hel the budget deficit!
Yeah, I thought that the owner of the property was subject to taxes and that it was a
part of your monthly rent? I don’t think I see the distinction? Homeowners just pay
the tax more directly. If you tax renters explicitly, then I assume we would stop taxing
the property owner? Wouldn’t the same amount of tax be collected?
On a side note – I think funding schools based on home values is a bad idea. It’s destined
to create an unequal system, where nicer districts get better buildings, etc.
I also agree with the reader who pointed out that landlords already pay property taxes on their property. The government should not be entitled to double the property tax simply because there’s an owner and a renter involved. In that case, you’re not collecting a property tax. You’re collecting a tenant tax.
In 2007, the majority of states in the U.S. got the bulk of their revenues from sales tax at 39.54% of their total revenue. Personal income tax was next at 35.45%. Then corporate income tax (7.02%), vehicle registration and driver’s licenses (2.89%) and, only then, state property taxes. On average, state property taxes only account for 1.62% of the budget. (Source is stateline.org) In my state – Tennessee – sales taxes account for 67% of our state’s revenue, mostly because we don’t have a state income tax.
The majority of people in this country support taxes that are not lump sum, that are basically “unseen.” So I think you’ll have a very hard time convincing a lawmaker to approve something like this, especially in such a renter heavy state like California. Studies show that states that enforce a higher tax rate are the ones having the most financial trouble over the last couple years. So increasing that rate or expanding it to cover people it just shouldn’t cover isn’t going to fix your budget problem. It’s going to drive people out of the state to the state next door that doesn’t charge renters a property tax. And since, like I said, the biggest state revenue generators are sales and income taxes, I feel fine about being a renter and not contributing property taxes.
That’s exactly it, “LANDLORDS already pay property on their property”, renters do not.
Why is it that it’s easy for someone like Obama to get elected, who wants to raise tax? Is it because the people who he elected isn’t going to get their taxes raised?
I’m glad you feel fine about being a renter an not contributing to taxes, but the country needs you!
Wow. Serious idea here, or just creating a buzz?!
I disagree completely, especially with this “We want to empower renters who feel slighted by society for renting by giving the an equal voice through clear and direct taxation.” and similar statements.
I don’t feel slighted or unempowered. I feel smart (for the particular market I’m in). I also feel that my voice is totally equal since my vote counts the same as any homeowners. Why would I want to pay extra for some “equal voice” that I already have?! The complaint has never been “representation without taxation”, but vice versa! (not to say i think I am not being taxed.) So please, don’t be so giving and stop trying to empower me!
I also agree with all that say that this is not a good idea because the owner of the property pays the tax, and typically passes that along as PART of the rent. You seem to be missing the point. Renting out space is a business. If you use the profit from your “business” to go on a european vacation, fine, but if you don’t leave enough money for “business expenses” (ie, property taxes), then you pay for them out of your “non-business” money… we’ll you are just playing games with what you call your money. Rent is business income. Property taxes is a business expense.
If you think renters get off easier, then maybe you should be a renter. My tax software always recommends i buy a home as a tax shelter, so I’m not so sure.
(as a side note, stereotypically renters also don’t often use some services these taxes go for, namely schools. This is less and less true, and not all homeowners have kids either, so this is barely worth mentioning)
So long as you are against the government singling out a certain group of individuals who make over $200,000 and raise taxes on them, I’m OK with your opinion. Can you imagine if you were a renter against a Renter Tax but you were for the government raising taxes on others who pay the most taxes anyway? Tell me your thoughts are aligned? Thanks!
“Homeowners therefore deserve a reward for their fiscal discipline” – There was a point in time where this statement would hold true, but not today! I think that everyone would agree that owning a home doesn’t demonstrate any sort of financial discipline – the exact reason why foreclosure rates are through the roof now.
I think that the fact that homeowners pay a tax on property that they own is what makes the difference. They aren’t paying a tax because someone feels that they are in a higher class, it’s because they own an asset that has the potential to generate wealth!
It’s a tax that can easily be avoided – don’t buy a home!
The government estimates that 18% of all rent paid is to go toward the property taxes on the dwelling. In that case, I paid over $2,000 in taxes on my apartment last year.
This is the same case with sales tax. State sales tax is actually charged by the government to the retailer; but guess who pays that tax? The consumer. The retailer could decide to cover all of the sales tax and just raise the price (making the consumer pay it implicitly), or they can have it pass through explicitly as most do now.
Landlords just choose to roll it up into the price of the rent! If the taxes were higher, the rent would go up as well. They aren’t getting the short end of the stick, they just choose to not issue an invoice to the renter showing what makes up the total rent.
Another thing to consider is if rent is currently fairly priced, then a renter’s tax will reduce the amount of rent that the landlord can charge.
Well said, and all very valid points and examples. Where’d you get this stat though? “The government estimates that 18% of all rent paid is to go toward the property taxes on the dwelling. In that case, I paid over $2,000 in taxes on my apartment last year.”
Why is it assumed though that rent is for a mortgage or property tax at all? Why can’t rent be used for a European vacation? Who says a portion of rent is for property tax? Rent can be for anything i.e. what if there was NO mortgage. What is the rent going to now? Get my point?
Empower renters by treating them equally and charging an implicit tax while lowering the tax burden on homeowners.
To answer:
“Why is it assumed though that rent is for a mortgage or property tax at all?”
Because renting is a business. Therefore, the most BASIC thing you need to understand is that business income – business expenses = profit you can spend on whatever. Property taxes are a business expense. Mortgage is a business expense. Those have to be paid, whether or not the landlord also went on a vacation that year. The landlord received income in the form of rent. Rental income is used to pay rental expenses. If rental income doesn’t cover expenses, you have a loss in which the rental business has to borrow or take money from the personal money of the landlord. It doesn’t matter if the physical dollar bill that they got from rent is spent on a coffee while a dollar bill they found on the street was hand delivered to the tax assessor. If the landlord is too business-stupid to keep separate accounts or to claim rental expenses as a deduction on their tax return, that’s their loss. You cannot just take your business income, spend it on anything you like, and then expect to continue renting without paying your expenses, your property will be taken away from you. You cannot go on a vacation with the rental income without paying the property taxes. If a landlord is renting out their property without taking into consideration that they have expenses on it, and therefore their goal is for the rent to cover those expenses, then they are quite frankly too stupid to be owning property or renting it out.
And renters have a vote in all local elections, by law. What empowering does there need to be?
Hi Kat,
Is it safety assume that you are hopefully against the government raising taxes on “the rich” given you oppose a Renter Tax?
I see your point on a business, ifthat is what the homeow er chooses to do. The owner could easily have no mortgage and just renting the place out to a relative.
This seems so pointless to me. The property tax for the rental is already added to the rent, its just not broken out. Its very simple, if you own a property you want to rent, you are calculating the cost of the taxes into what you want to charge along with property insurance & any mortgage you might be carrying. Think of it as a VAT, its built into the price of the finished product. If there were no property tax on a rental unit & a renters tax instead, the free market would drive the cost of rent down roughly the same price as the tax.
Now your the government looking to collect taxes, who would you rather try to get the taxes from, a property owner with a mortgage & some skin in the game, or a renter who could disappear overnight & has no investment in the property other than a security deposit?
A bad argument on a false premise.
Bingo! All about having skin in the game! Which is why renters and owners alike shud cut checks directly to the govt every year and contribute not just homeowners.
Very interesting post Sam but I think I may have to disagree on you on this one.
https://spruceupyourfinances.com/home-renters-should-not-pay-more-taxes-a-rebuttal-on-financial-samurais-article/
Sam, I think the renter is paying tax for the dwelling-owner via wrapped into the rental fee. So, it would be double taxation to add another tax on top of it.
The only person paying taxes is the homeowner. The suggestion is to have renters physically write a check to the government in the form of a Renter Tax so that everybody in the community will explicitly feel the pain so that all interest are aligned to make the community the best possible community.
this is why IT’S NOT a good idea to buy a house right now.
Why? Feel free to elaborate. IF the gov’t is going to pursue renters for not paying their fair share, might as well go buy a house if you are right?
Good schools, good roads, convenience, crime management — all things renters look for in a home just as a home buyer does. If you want your rental to look attractive, then you will pay to make sure the community offers what people are looking for as as posted and fold that cost into what you charge. I’m not sure what governmental double dipping would do.
I post this as a renter, a landlord, and a person who believes we generally don’t pay that much in taxes.
Sam,
If I renters tax is put in I predict that renters will pay the landlords in cash or charge $10 a month in rent and have the renter mow their lawn and do other odd jobs or become a personal assistant. It will be hard to collect this tax.
Cars and properties are registered so there is an easier mechanism to collect tax.
The government has already supported home ownership with the deduction on mortgage interest and allowing capital gains to be taken tax free with residing in the home for 2 years. Basically the government has encouraged the population to buy a home and generally people were rewarded for it since house prices went up. Case in point look at housing in Southern California- from 10 years ago house prices are 3 times higher- a lot of this was due to low interest rate policy and allowing capital gains to be taken tax free.
Now housing hit the peak bubble and is declining in price in spite of more government incentives to get more suckers (homeowners) into the game, like the $8k tax credit and increasing the size of jumbo loans Freddie & Fannie can hold to keep interest rates lower. It sure seems we are subsidizing home ownership. I guess another way to keep doing this is to tax the renters but you can expect compliance to be really low plus expect a good number the public to be outraged (around 30% of the population are renters)
Plus the definition will get sketchy. This recession is forcing young adults to move in with their folks, and for people to double up in a house. Does that mean they have to pay a renters tax? What about the guy living in a cardboard box? The government needs their pound of flesh there as well?
-Mike
The solution is simple. The renter doesn’t pay a tax to the landlord. The renter pays an annual tax to the government when they do their taxes and file every april 15th. It’s actually really simple.
If you live in your mama’s basement, well then no tax for u! Only yo mama pays.
Wouldn’t all renters claim they are living in their momma’s basement? What about the 30% of Americans that don’t file a return?
Finally, property taxes go the local community but you are proposing (I guess) sending the renters tax to the federal government???
I don’t think all renters will claim momma’s basement. The renter tax will be written to City Hall, just like what homeowners do.
Voluntary tax compliance is normally low.
You are in CA, do you report your CRV refunds as income? Under CA state law this is supposed to happen, but in practice nobody I know does this. Do you?
-Mike
Sam, I have to admit, I’m with most of the commenters here and not really sure where you’re coming from with the differentiation between taxes and mortgages when it comes to landlords. When I pay rent to my landlord, that money goes toward paying everything on that property, taxes included. For the landlord to set it up otherwise would be poor business.
I agree–taxes go to the government, but my landlord is responsible for paying those, not me. If we’re talking about being fair and equal, then I think that’s exactly what we have in place now. You’re talking about taxing people double, which is unfair IMO.
If my rent is $1,000 and $100 is my share for the taxes (monthly taxes/number of units, etc.), then that’s for the landlord to figure out. I want to see one number, my rent.
If my landlord doesn’t pay their taxes on time…guess what–I’m not going to be able to stay in that apartment complex for very long after the government liens the place.
My 2 cents…
Hi Wojo,
It’s a fair 2 cents, however who says your rent is paying for anything related to housing for the landlord? It could be paying for his car fund, or Hawaiian vacations. The landlord might not have a mortgage for example. I understand where commenters say and think rent bakes in property tax, but that’s not necessarily the case.
We have double and TRIPLE taxation all the time in the States. Dividends are double taxed as it comes after net profit, if you sell a car 5X you have to pay tax. Do you honestly think when you pay your rent, it is going towards funding the local community?
The property tax is something a homeowner cuts separately to the government all together. If there is any correlation, rent is to mortgage, and that’s it.
Point taken. However, if the landlord uses the rent to pay for vacations, then they have to use their vacation money to pay their taxes. I think it’s a circular logic. One way or the other, someone’s gotta pay the taxes, and that’s the landlord because they own the building. (If you rent a house, they own the house—same difference). So it’s coming from somewhere, whether the accounting says that’s the rent or not.
I agree that double taxation exists, BUT we’re looking for the fair solution here. As a renter, if this kind of law was put in place, my point of view would be “why am I paying for these taxes twice, and you–the homeowner–only once?” Not to mention the economic effect on landlords of this kind of solution.
I also think car sales and dividends are irrelevant to the discussion at hand–different animals alltogether. If cars were taxed as property, I wouldn’t want car owners paying $100 a year and car leasers paying $100 a year through their lease price PLUS $100 out of their own pocket.
If we’re looking to supplement state and local budgets, I say raise everyone’s property taxes across the board. Rents WILL go up to compensate. If they don’t, goodbye Hawaiian vacation. :)
I see your logic, just don’t buy it. I think the system’s pretty fair as is.
Do you think most renters are the ones who believe things are fair as it is because there is no Renter Tax to speak of, yet? Also, do you think there are people in America who pay less taxes or no taxes, who wish to vote to raise taxes on those who are already in the 33% and 35% tax bracket?
What are your thoughts on instead of raising property taxes, to have the city/state mandate an across the board increase in Rent instead, say 5 or 10%?
“Do you think most renters are the ones who believe things are fair as it is because there is no Renter Tax to speak of, yet?” Sure, because I think a renter’s tax would be unfair. To quote a friend, “if I’m gonna get screwed, I might as well put up a fight.”
“Do you think there are people in America who pay less taxes or no taxes, who wish to vote to raise taxes on those who are already in the 33% and 35% tax bracket?” Of course, but don’t see how that relates to the discussion. No one’s trying to screw the rich here, if you agree with the premise that renters already pay property taxes indirectly (which I believe is the case).
“What are your thoughts on instead of raising property taxes, to have the city/state mandate an across the board increase in Rent instead, say 5 or 10%?” See above. I don’t see how that would be a fair application of tax law.
Wojo, is it safe to say you are a renter? Do you think renters currently feel they are “getting screwed” right now b/c of the cost of rent, the lack of benefits, or the fact that homeowners get to deduct the mortgage interest?
The relevance of your 2nd paragraph is simply a perfect correlation. A renter can’t demand the city fix this and that, and vote to raise property taxes and such on homeowners, since they are not paying property taxes or a renter tax themselves.
I’m trying to EMPOWER renters with the proposed Renter Tax. That way, renters can have equal say with homeowners, and not be slapped around so much!
Fight on.
That’s correct, we rent right now. :) I don’t think renters get screwed at all, but I think a renters tax would put us in that position. I disagree with the rest of your statements, but I can see that we won’t see eye to eye on this one so we might as well call it a day lol. :)
Ah, Sam, another interesting post, Sam. I tend to side with most of your other commentators on this; renters DO pay taxes, at least indirectly, and don’t benefit from many of the government incentives that property owners have available. I might support a law or regulation requiring landlords to explicitly state the amount of rent that goes to the government and/or requires the renter to pay that tax directly, but an additional tax on top of what is already included in the rent seems excessive.
Besides, if anything, we should be fighting to reduce, or even eliminate the property tax, rather than trying to expand it or add a renter’s tax on top of it. Because the property tax is based on the net worth of the property rather than income, it tends to hit people who are making lower incomes the hardest (including retirees who are living in homes they purchased during their higher earning years). As a method of funding schools, it ensures that children in the worst neighborhoods will go to the worst schools, get the worst educations, get the worst-paying jobs, and end up with their children repeating the process. Finally (at least for the arguments I’m going to stress; there are many more, I’m sure), it means that in a very real way, the government is the real property owner; it can confiscate your property for failure to pay taxes the same way that a landlord would kick you out for not paying rent. For that last reason alone, opposing property taxes seems like the logical option.
“As a method of funding schools, it ensures that children in the worst neighborhoods will go to the worst schools, get the worst educations, get the worst-paying jobs, and end up with their children repeating the process.”
Best point ever.
I am for the poor getting a good education (I come FROM the “ghetto” myself), but this way of doing it just keeps poor people poor, while pretending that it’s somehow more egalitarian because it is publicly funded!
What if local grocery stores were funded out of property taxes? “Sorry sir, you can only buy stale bread. That’s what you get for your property taxes!” Want to purchase something different? You can’t, because all of the grocery stores are owned by one company (Uncle Sam) and the selection of food is set by regulation. You might get higher quality bread elsewhere, but your choice is still bread. If you are very rich, you can go to the private shop that has fancy bread from Paris…. but you still get bread :P There is no variation of choice. It’s as if the only choice in car was a 20 year old lada or a brand new Lada.
Again, I am for better education. I think it comes from competition and variation of choice, not a one-size fit all controlled environment like we have today. We can choose from dozens of different car companies and cars from a $500 beater up to a luxury model, and hundreds of models in between. Whether you are poor or rich you can find something decent and something that works for you.
Didn’t read all the comments, but I’m SURE someone mentioned this. Renters DO pay taxes, through their Landlords. What do you think is covered in the cost of rent? The landlord pays all the property taxes on his property, and he passes the tax costs down to the renters in the form of Rent. When a Landlord pays the property taxes, he is doing so with the money of the Renters.
It’s like my Art Sales. I wrap taxes up in the final cost of my art to my patrons. A painting will cost them a flat rate. The taxes are wrapped up in the rate, and not a separate fee. I then pay the taxes I owe to the State and Feds with the money that was given to me by the patrons.
Rent works the exact same way.
If you charge renters a separate tax, then you are taxing them TWICE. The government will get the taxes from the landlord, plus a bonus tax from renters (who will be paying it on TOP of their rent….and the landlords will not be so kind as to deduct this tax). How is taxing renters TWICE for the same tax fair?
BD, the title of the post is “Renters Should Pay MORE Tax” not “Do Renters Pay Tax?”.
We have double taxation each time we sell a car, and each time a corporation pays dividends, so why is this any different?
This is a great solution to shore up any city/county budget deficits.
It’s still a bad idea. Renters shouldn’t pay MORE tax, because most renters already have a much lower income than homeowners…that’s why the large majority of them (including myself) rent. We can’t afford even more taxes. Yes, there are always exceptions (like rich people who rent just because they don’t want to do maintenance on a house), but for the most part, people who rent are not well-off, and couldn’t afford yet another tax hit. Heck, I can barely afford food.
I donno BD. I think you are selling the renter population short. To raise the perception of renters, the government should treat renters with dignity and equality. No better way to do that than by taxing them the same amount, or at least some amount as they do homeowners.
Renters tax is a way to create means to cover up for deficit. Having to contribute to government funds through taxes are essential part of the whole system that delivers a fair imposition.
Really now?
Property owners pay property tax. Rather they choose to rent out that property or not, the owner of the property pays the property tax. Whoever owns the property these mythical cheapskate renters live in is just as much on the hook for this tax as single family homeowners are. Since both property owners are paying the same tax rate per dollar of assessed value, property that is rented out pays just as much tax as property that is owner occupied. The government is not getting shafted when property is rented out as opposed to being owner occupied. If both properties have the same assessed value, they likely have the same tax bill. In most areas this tax bill is factored into the rent demanded of renters, causing higher rents than would be sustainable without property taxes, effectively causing the renter to foot the tax bill as part of his rent.
Eh? Sorry, I don’t understand what you just said. Can you simplify your statement?
Why wouldn’t a renter want to pitch in and help the community through a rental tax? I pay tax when I rent a blockbuster DVD yes?
If a renter wanted to pitch in and help the community, why wouldn’t they just give to local charities? If you force them to contribute through taxes they’ll just lower their charitable giving and the overall contribution won’t change.
I was saying that the property renters live in already generates tax revenue through the property tax assessed on the owners. Just like if a relative visits you and lives with you your tax bill doesn’t change.
You and I know that won’t happen ie voluntary charity by renters to the community. This is why we have laws to enforce collection! You think if the gov’t suddenly said, “Everyone is free to pay whatever tax rate or amount they want!” the system wouldn’t crumble due to a lack of tax revenue?
Come on now!
By the same logic, Sam, maybe we should implement a tax to save private companies when people deem that their products suck and refuse to pay for them voluntarily at a level to support the company. Oh, wait, we did that already :P
I think the statement is logical enough. To put it into a nutshell: The total amount of property tax generated by a neighborhood should be based on the value of the underlying property, not vary based on what percentage of the people living there are renters.
Patrick said:
Since both property owners are paying the same tax rate per dollar of assessed value, property that is rented out pays just as much tax as property that is owner occupied. The government is not getting shafted when property is rented out as opposed to being owner occupied. If both properties have the same assessed value, they likely have the same tax bill.
—————————————————————————————–
Actually, in many states, a property is taxed at a higher rate if it is a rental than if it is owner-occupied. Often, not only is the government not getting shafted when property is rented out, government actually gets a better deal when property is being rented out than when it is owner-occupied.
Consider Michigan, which has a “nonhomestead tax” on rental property. Local school districts receive School Aid funds yearly from the state based on the assumption that each school district will levy the full amount of nonhomestead tax allowed.
When a property is a rental, the nonhomestead tax goes to the school district. When a property is owner-occupied, the nonhomestead tax doesn’t apply, and the state kicks in the same amount that would have been provided by the nonhomestead tax, making it a wash for the school district. Put another way, the school district doesn’t care whether property is owner-occupied or rental; they get the same amount of money whether it comes from property tax or from the state.
But it makes a big difference to the state, because the state government IS getting shafted (in a sense) whenever rental property is converted to owner-occupied – every owner-occupied home costs the state more money in higher school aid payments to local school districts.
This doesn’t pass the smell test to me: complaining about how your homeowners taxes are going to esoteric/unnecessary things in the beginning of the post and then suggesting that the solution is to tax more? And to allay it on renters who are traditionally more suceptible to price increases makes it that much worse. This smacks of schadenfreude, Samurai.
In the big scheme of things, owning a home that goes over the $1.1 million mortgage deduction limit is a pretty nice problem to have. Kinda like rappers whose dilemmas are characterized about whether they should take the Rolls or the Bentley for a spin.
I usually see eye to eye with you Sam, but I’m totally against the message in this post.
Please elaborate more on the schadenfreude aspect Chubs given I believe Renters have it good b/c renters don’t have to pay all these fees and property taxes. Schadenfreude would be if I’m finding joy in other people’s suffering. Where do I do this? The people who are suffering are people like me and other homeowners who have all the burden of public works projects and school funding on our shoulders.
While I wont argue Renters may need to start contributing via a renters tax. I will argue the effectiveness of that tax. I don’t think the problem stems from a lack of Government tax revenue as much as horribly planned spending and inefficiencies. Before I throw more money at the most powerful entity in America, I’d like to try and fix the bleeding (like a train we don’t need) first. Do we agree on that?
What should happen when you have been a renter for 30 years and paid of the owners mortgage. If you are a landlord would you lower the rent?
Probably not. The landlord would just charge market rent and collect all the income.
And this is exactly why your “renter’s tax” is flawed. Homeowners shoulder the tax burden for so many years for the Lord’s privelege of having income later.
Let’s face it the real issue is government spending. I’m not opposed to your renters tax (and I’m a renter), but I am opposed to paying a rental tax when it will just go to more wasteful spending. i.e. A train we don’t really need. Lack of taxes isn’t the issue. It’s the spending. Can we agree on that at least?
I agree completely! So good of you to empathize with the homeowner and those who pay some 50% of their income to taxes. Cheers
I agree with Charlie in allocating tax burden based on usage. If there is no use for something, why pay tax dollars to support it unnecessarily. That said, I am a landlord of several properties not only in the State in which I live. I pass on property taxes to my tenants in almost all cases. A “tax” per-se on rents may not fly as well because of the reasons you mentioned in your post. However, think about rent a center, or renting videos or boats – there are taxes involved in renting and one can argue we can do the same for rental homes. The taxes will have to be passed on to Great Uncle Sam, and create more administrative burden for landlords.
Though laws are changing and I believe its being done away with, here in New Jersey renters actually receive a property tax rebate when filing their income taxes! Supposedly an estimated 18% of their annual rent goes to property taxes and they are able to get a small rebate of around $50-$100.
Wow, really? My homeowning friend in NJ says property taxes are ridiculous there i.e. 2.5-3% of value of property every year. If renters could pay half of that explicitly, it would make things much better for homeowners and the state as everybody pitches in.
Yea taxes here are crazy. My home is worth an estimated $300,000 and I pay close to $90000
I mean $9000! LOL
great post. I totally agree, if a homeowner doesn’t have kids why should they have to pay for other people’s kids going to school and if a renter has kids they should help pay for the schools in the district if they have kids attending there. There’s no easy solution but we really need more tax reform. The government needs to think outside it’s stupid box
There’s an easy solution mathematically but not politically. Replace most taxes with private fees? But the poor will starve and die on the streets, won’t they? Wait a second… how are they not starving and dying with private production and distribution of homes/apartments and private production and distribution of food…?
Let’s look at your $700,000 home for example.
The property tax is $8,400 (@ 1.2%), which is deductible. Let’s assume you are in the 28% tax bracket. That means you will recover $2,352 when you file your taxes. Now we are down to a $6,048 tax burden.
Now let’s say you are 10 years into your 30 year mortgage at 4% fixed. You will pay $21,725.01 in mortgage interest that year. When you subtract the standard deduction for a married couple ($11,400) then you are still reducing taxable income by another $10,325. That’s another $2,891 tax savings, leaving your overall property tax burden at $3,157. The true tax burden here is much less than you are suggesting.
Then, if you look at a single guy who is in the first year of a 30 year mortgage @ 6%, he will have paid $41,766 in mortgage interest. When you subtract the standard deduction ($5,700), he is still reducing taxable income by $36,066. That’s a tax save of $10,098. Add in the $2,352 recovered from property tax, and instead of paying taxes on his home, this guy actually has the government pay him $4,050 to own a home. Find me a renter that can get paid $4K just for paying for a place to live.
There’s also the idea of “being fair”. Maybe renters should pay a tax, I have to question the method you suggested. Let’s compare someone who rents for $1,200 a month to someone who has a $200,000 mortgage for 30 years at 6% (who also pays $1,200 a month). In your example above, the renter pays $7,200 in taxes a year for his apartment. The home owner, who is paying the same amount per month, would only owe $2,400 in property tax (before deducting the property tax and mortgage interest) while also building equity in a home. A tax such as you have suggested would quickly make renting substantially more expensive than owning, and effectively eliminate the entire renting population.
A thought provoking topic Doctor, but I have to disagree with you on this one.
Kevin,
Thanks for your thoughts. Your math is kinda flawed.
$1,200 a month = $14,400 a year. Divide by 4% = $360,000. Multiple by 1.2% = $4,320 and not the $7,200 you suggest.
The main question is this: Don’t you think renters should pitch in and pay a tax like homeowners do to help support the local roads, infrastructure, and schools?
You are right, I have no idea where I got $1,200 from. It’s late in central time. With that being said, the $4,320 for the renter is still larger than the $2,400 for the home owner.
As far as the main point is concerned, I do agree that home owners are taking an unfair burden of local taxes. I don’t think adding a renters tax is necessary, but I would support lowering property taxes and raising sales taxes. It would increase my own personal taxes since I am a renter, but I do think it would be a better system.
Do you think the people who “don’t think adding a renters tax is necessary” are mostly renters?
I actually have a belief that most renters would be willing to pay a Renter Tax and help contribute to their local community.
House prices are already insane in Auckland, and this would just exaggerate that!
Ha, but like me, you live in paradise! So it’s worth the cost and renters shud pitch in as well!
LOL!!!!!!! Sam, I had to run over here when I saw this post. Can I safely assume that my comment on your previous post inspired this post? :)
Renters already pay a renter’s tax. It’s called rent. That rent pays for the property tax and whatever else the homeowner feels like charging for!
Indeed! Thx for the reminder! Your rent pays for my trip to the Maldives, and not my property tax! You see how here is no correlation with rent? If any, the rent is used to pay off the mortgage I interest. Prop tax is to the govt and totally separate! If renters paid for some of the taxes, rents may actually go DOWN as landlords charge less. Brilliant
Just call it rent + they pay some of the property taxes then. Still comes to the same thing ;)
You can do it, Sam, but it won’t actually change anything when you look at the actual numbers. It might fool some people. I feel that you’re trying to make a point though… are you planning to apply this same train of thought elsewhere?
As a renter, do you honestly believe your rent is going towards paying for teachers, schools, and roads? Seriously, be honest.
We need to raise tax revenue due to massive gov’t spending. So why not just charge renters a small fee to rent? It may LOWER their rent b/c then the landlord won’t have to pay as much in prop taxes!
It probably wont lower the rent. Landlords charge the most they can get away with 99% of the time.
Why do you think there would be disapproval for a Ret Tax Law, aka equality?
Renting is paying for shelter, and shelter is taxed at the owner level, so there’s no reason shelter shouldn’t be taxed at the USER level i.e. renter as well.
Again, taxes go to the government, not to the property owner.
Just ask yourself what the ratio of homeowners to renters is and you have the answer to why it would fail to pass. It’s actually even worse, try the ratio of non-landlords to landlords and you have an even more accurate answer to why it would never pass.
Indeed. We vote with our pocket books.
I’m trying to make people who love to vote to raise taxes on others, realize that increasing rents is not the best way. It’s not right to raise other people’s taxes without paying more ourselves.
This doesn’t make much sense. Properties should only be taxed once – the homeowner pays the property tax and includes that in their expenses which should help determine their rental rates. If they can’t get a high enough rent to cover the expenses plus ROI then they should sell the property.
Mike
I don’t get why you don’t think millions of renters would want to pitch in and pay a Renter Tax and help the environment?
We voted for big government to raise taxes. Don’t tell me people are voting for big government to raise taxes and aren’t willing to pay higher taxes themselves? That would not be right.
As a renter, I assume my landlord is already factoring in his property tax into my rent. So why should I be paying taxes on a property I don’t own? Wouldn’t that be a double taxed property? And the landlord should pay the taxes because he owns the land and building. (Also, isn’t there a way to take over a property that is in tax default? Hence, if I was paying my landlord’s taxes, would I slowly get to own the property?) As a renter I don’t have the luxury of writing off any portion of my rent for property tax because I don’t really know how much of my rent is going towards the owners property tax.
I’m not quite sure if you’re saying we need more taxes to help close the budget gap, or that renters are getting off easy. Which is it?
You aren’t paying your landlords taxes. This is an important point. All taxes go to the big bad Government!
Just like cars are taxed everytime they are sold, a renters tax to the govt is a double tax that the govt can impose to have everyone pitch in to keep up their mega spending ways! Good idea? :)
So when you buy a big screen TV at best buy you cut a separate check to California for sales tax? No, you don’t. Its collected for you and sent in as a whole by the company. Exactly yhow property tax is, its passed on to you by the price of rent and the whole property tax is sent by the owner.
Maybe, but who is to say the rent I collect is for property tax? The rent I collect from tenants is used to pay for my vacations. Now do you see the flaw in your reasoning?
Why aren’t you willing to pitch in and fund your local schools and roads as a renter? I just don’t get it.
The flaw in your reasoning is that even if you decide that the rent you collect is going to pay for your vacations, you are still going to owe property taxes. You don’t just get a free pass because you tell the government that you spent your rental income on a vacation.
I was also under the impression that the homeowner pays the property tax. Although a portion of the rent isn’t specified as property tax, essentially it is. If there was a tax imposed above the rent to equate property tax then no one would ever rent because the rates would be absurd!
I hate when homeowner’s complain. You have the lowest interest rate loan possible and over the long run create equity. And if you don’t feel entitled and trade up every 5 years you could be living rent/mortgage free after 15-20 years! My rent isn’t going to magically disappear once I pay for 30 years. Sorry you don’t like paying taxes to keep your neighborhood nice and property values high. At least you can deduct them.
Tell me, then why do you rent?
If everyone paid a Renters Tax, dot you think rents may actuAlly decline?
Its obvious you are just trying to say controversial things to stir up a lot of comments on your blog because most of your replies are not logical. Contrary to what you might thing, most renter’s rent because they don’t have a choice. They either can’t commit to staying in one place for a long time, can’t come up with a downpayment, etc. Its a pretty obvious answer. Of course there are always locations where renting is financially beneficial, but I would argue that is not usually the case.
Likely, if your double renter’s tax was instated you’d have a lot of angry landlords who can no longer get their units filled. You’d also have banks going back to their incentives and ARMS and 0% down loans to encourage people who shouldn’t buy a home to buy one on a whim. So in an effort to create more money in govt budgets you would be creating a whole other crisis.
Let’s say the govt owned all property and we are all renters. Now do u see why a Renter tax is fair? Why wouldn’t you want to pitch in to help infrastruce and school?
An owner owns bc s/he saved and managed to get themselves in a position to own. Why just tax them and not renters as well?
I agree, most of Financial Samurai’s responses to commenters don’t seem to make much sense. The response is always “renters should pay for infrastructure too”. For example, in an earlier response, FS writes “We want to empower renters who feel slighted by society for renting by giving the qn equal voice through clear and direct taxation” and “The rent I collect from tenants is used to pay for my vacations.”
As a renter, I don’t feel slighted by society, and in fact I feel a lot less troubled than most of the underwater homeowners here in Phoenix. I assume my landlord includes the property tax in the rent. If she were to charge me only the cost of her mortgage and some amount to cover ongoing maintenance, she would be losing money by paying property tax out of pocket. If she chose to pay for her vacations instead of the property tax, that’s her problem for being fiscally irresponsible. If you want to pay for vacations and property tax, raise the rent!
I view the property tax the same way as I view the water/sewer/trash fee that is often included in rent. I’m paying for services, but not explicitly – it is included in the total amount charged for rent. I can choose where to rent based on the total package – is W/S/T plus tax plus the cost of the mortgage plus maintenance less than or equal to the amount I can afford to pay in rent? If so, great. If not, I’ll find somewhere else to live. It’s that simple.
Thank you for your statements! I completely agree with you that the author is purposely being obtuse just to gain activity to a blog about utter nonsense.
Hey, if landowners are a superior class of citizen, then them paying superior taxes only makes them even more superior!
So instead of resenting those extra taxes, this author should hold his head up high because, he’s a superiot man!
The main message is to highlight how raising taxes on property owners ends up raising rent on renters. Therefore, I hope everybody can be more judicious in trying to always raise taxes on other people without thinking they’ll pay more of themselves eventually.
How did you stumble across this old article? Was there a particular google search term you used? I’m curious!
Well, wouldn’t that be double taxation in a sense? The owner of the apartment/house already pays tax on the property. Therefore, someone is already paying to support the taxes/roads, etc for that property, and they may not even live anywhere near that residence. Yes, the renter ‘gets off easy’, but the landlord pays the piper. As long as someone is paying tax, I don’t see how it could be justified to get even more tax dollars. Or, am I missing the point?
Ahh… Rent would be cheaper if landlords didn’t include their taxes. After all the goal for a landlord is to make money. Property taxes is part of that equation.
I’m excited as a landlord since I know rents will increase with city and state deficits. The area I had my rental property has remained stagnant in rental prices for the past 10 years.
Either way I don’t buy your proposal.
Exactly. Renters are already paying the property tax essentially, so making them pay twice just isn’t right.
Boo! Renters are paying for a homeowners mortgage, not property tax. A renter can pay for a homeowner’s European vacation, but not prop tax.
Tax is to the govt, NOT the owner!
Sounds good, but you miss the point. We want to empower renters who feel slighted by society for renting by giving the qn equal voice through clear and direct taxation.
I really like the idea in the way that you stated it here. I think this message is lost in your original post.
Let’s say you buy a new car. You have to pay 10% tax on it here in California. If you end up selling the car second hand, the buyer of the car has to pay 10%, and if the car is sold again, the other buyer has to pay another 10%. The gov’t has collected taxes 3 times in this example!
Why not tax renters as well to capture more income and shore up the economy? Sure, the landlord can raise the rent, but why not just have that money go directly to the gov’t?
Yes, but in the case of the renter’s tax. The same person is paying twice every year. Not someone separate and a few years away from the first time it is paid.
That’s why we can just institute a 1% Renter Tax every year instead of a 10% sales tax.
Sound good? This way, renters too can pitch in for paying for their community!
Do you think people rent without having jobs? CA has state income tax, and all renters are paying price-in property taxes. They are pitching in and not getting the redistributionist benefits of the socialist mortgage interest rate deduction.
And the reason you pay a lot of user and local “fees” is because Prop 13 makes it so that the state and localities have to raise funds through creative means because a bunch of idiots just like you decided 40 years ago to make it almost impossible to raise state and local income, sales and property taxes. With property taxes really being capped despite the amount of inflation.
Not sure what your argument is. Check out: The Main Types Of Risk Exposure To Be Aware Of. There are so many folks right now who are so angry at homeowners, and that’s because they feel like they’ve missed the boat by not buying or investing. Don’t get left behind.
That is true- I know that too well as I bought a used car last week. However, that property is being taxed year after year already. I could see it more if property taxes were a one time only thing. However, it is perpetual.
Don’t get me wrong, I get your point about renters getting off easy in a sense. However, I cannot imagine what would happen to the truly poor that are renting because it is all they can afford. Maybe if it was almost like how they tax boats and such as a ‘luxury tax’, I could see it getting more support. (Meaning, only renters of homes/apts valued at greater than ‘x’ amount would have to pay a tax?)
I don’t think there are any easy answers. Maybe if there weren’t so many ridiculous loopholes and bailouts the states wouldn’t be in so much trouble to begin with.
For a car, it is a transaction tax of 10% a pop! For a house, it’s “only” 1-2% a year. Hence, that’s like changing cars every 5-10 yrs. Pretty similAr if u ask me.
The point is, as u say, why have a reoccuring annual prop tax in the first place? Lower prop tax for homeowner landlords means lower rent for renters!
Wow, you are a moron Mr Samurai. A PROPERTY tax taxes the property. Not the homeowner or the renter. That is why the PROPERTY owner pays it. IF you had an empty lot; you would pay a PROPERTY tax. The renters don’t “get off easy” as you put it, they have to pay rent which is usually a lot more than the owner pays. But the owner (as I’m sure you know since it would seem you are a landlord) passes the tax and other expenses like insurance, on to the renter. Thus the renter DOES pay their fair share.
Waht you seem to be talking about is a PERSON tax. And to make that equitable people who have a lot of children should pay FAR MORE than single people, or childless couples. Would you support that? I bet not.
Hey…..That’s really funny, so the gov, that raises taxes. On
Everything under the sun, with no reason, accept
we could raise , the taxes… the property’s tax ,gas tax Raise Insurance,,,,,, and best of all..employment taxes . to give big retierment payments to government
Officials in office 30 years ago for
the imaginary wars they created in afganastan, Isreal, kuaitt , North Korea
The last few years and say it was in your best interest or the people’s, they say they are helping…
Now …they raised taxes 10% all over the board that$ 0 .10 cent bag of chips. Well that’s $1.50 now that’s a lot more than 5%
That’s 140% raise in price. Or the once price $0.50 Pack of ciggarette papers that’s $2.00,now. So where on the pack does it say I can charge what I want
In some stores in Canada
That’s 150% raise in price. That works out to 8x the value of the product….and
Ciggarette,s. They were at one time under $1.00 now. They are over $10.00 a pack in some places where they should be $1.00
but we don’t pay everyone an extra 5% or the 8x values of everything
which they don’t.
And charge everyone, 5% still, so it’s made to make the landlord look like a piece of shit
And ,Not the government which they are
And it showed asthere are so many homeless people now everywhere in all city’s
so anyone on a dissability or a shitty welfare payment system, can pay more for rent than food phone cable internet,or
Insurance , combined,
so the dead beat government Can collect more for the selvesand make your landlord look like it’s his or her fault your rent went up. Like ha ha ha it’s not our fault doh,
Don’t expect us to give more because we take in more.
That’s how you the government work think act
that’s just everyone’s opinion not just mine
“yet both the homeowner and the renter enjoy the same benefits” …. I’d say that the homeowners building equity would be the main benefit to owning.
But as the housing downturn has shown, building equity is not always the case even though renting is definitely never the case.
It is an interesting idea but the other commenters are right that the owners of the property are already paying taxes. Also, don’t you think the cost of the rent already has the tax “built in” to cover the tax?
It will never happen, just like the fair tax is a long shot (but even so I am all for it). Our tax system is way too complicated, and it is only getting worse. We need a clean slate.
Don’t landlords charge tenants tax already? If I owned an apartment building, I’d work my bills and future taxes into the price. Doesn’t everybody?
Nope. Landlords charge tenants RENT. The government charges people taxes.
This is a KEY difference which you and many others are missing.
That’s interesting. I’m looking at it from the perspective of international retail. If I go to the store in Singapore, Thailand, or Malaysia to buy a widget, and the price says 5$, I pay 5$. There is sales tax, but it does not get added to the price after purchase, rather, it is included in the price. The company (711, for example) actually is charging me 4.78$ with the .22$ tax already factored in.
Since the landlord has to pay taxes on the property she owns, wouldn’t she charge the tenant extra to cover that tax?
You’re suggesting that landlords get taxed AND tenants get taxed? That seems like double taxation on property. How do they track rental property vs non-rental property. Who pays on an empty apartment, or any of that other stuff.
This is a great post, Sam!!!
Your renter tax seems unnecessary. If you think the homeowner is getting the tough end, increase the rent!
Thoughts on a government law that mandates All landlords to increase rent by say 5% a year so that the renter faces rent increases everywhere then?
no reason to overcomplicate things with additional laws. it just gets rolled into the total rent, no breakout needed. as a homeowner you can set the rent. if your costs go up each year then you should be increasing the rent each year. if another homeowner has increasing costs but isn’t passing them on, they are choosing to make less money each year to offer a more attractive product.
KISS and let the markets work
I agree. Let’s keep it simple and do a 1% Renter Tax on the capitalized value of your rent. Or, better yet, just a 10% annual tax on the total annual rent one pays.
Equality so that everybody pitches in and not just homeowners.
Are you just trolling?
How can somebody with an MBA from Cal even write this crap?
The clearest reason renters don’t pay property taxes is because not all people are as retarded as you are and rental is by definition not the “property” of the renter. Except, I am a renter and I DO pay property taxes, every month, just like I pay my landlord her homeowner’s insurance, mortgage, maintenance costs and some profit.
Also, I’m may not be as wealthy as you it would seem, but I’m far from uncomfortable. I’m just not a spiteful person who thinks that luck had nothing to do with my success and that other people are free-loaders. Because, really. Most people aren’t and in the VAST majority of cases, poverty and some of its affect, even severe ones such as homelessness are temporary.
And if you think that the mortgage interest deduction is not socialism just because it benefits you (and banks)… I don’t even know how to respond to that when you write like somebody who cuddles up with Atlas Shrugged ever night and dream about Hank Rearden and his “steel”.
Chris – You can either blame others and try to bring them down to your level, or you can try to improve yourself. The more kindness you show others, the better your situation you’ll find yourself in. The next time your landlord raises your rent, it might be because you treated them poorly. Nobody feels sorry for someone who spews hate, discredits effort, and blames the world for their problems.
Related:
Buy Real Estate As Young As You Can Or End Up Bitter And Angry At The World
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This is great☝️It seems that people who own don’t really get it….I’ve rented owned and rented to others. I charge rent that pays the property taxes and covers my costs and a little extra. This samurai guy doesn’t understand this financial aspect….
Chris — great comment.
Sam — do you disavow any of what you wrote here 8 years ago? As I see it, Chris isn’t trying to blame anyone. He just seems bewildered (as he should be) that anyone with an MBA from a top 25 school could write the above article. It is akin to reading an article from Bill Belichick about football and discovering that he doesn’t understand what a field goal is. Though Chris’ strong language is regrettable, I can understand where he’s coming from as he must have been quite shocked (I’m sure you saw similar reactions all the time in the finance world!).
Not sure. I know some people who call others retarded, and they are some of the biggest lowlifes who were poorly educated and have few friends.
This article has a deeper meaning, wish I had repeated many times: if you’re a renter, don’t keep on voting for legislation that requires more spending without having to contribute to the bill yourself. If you want to stick it to property owners in the form of taxation, be prepared to pay ever higher rents.
But I do have an update that I sold my San Francisco rental home in 2017 and I am ecstatic to not have to pay $23,000 a year in property taxes anymore.
https://www.financialsamurai.com/why-i-sold-my-rental-home/
Amen to this!!!
FS, are you purposely ignoring the fact that homes that are “rentals” are charged at a higher tax rate? Significantly higher.
My home is a “rental” because my father owns it. I give him money to live here. My father has his own home and others so this home is taxed without the discounts you mentioned you receive for your home. This home in fact is billed at $1,558 per year. My next door neighbors is about $500 for similar home value.
The FACT is renters pay more than home “owners” in property taxes. This is not an alternate fact, but a reality fact. Landlords pass on costs in running the homes they rent. And taxes are part of that cost.
I supposes it’s possible California may not charge more for rentals so you may not be aware of this. But it is indeed the Law of The Land here in Indiana.
p.s what a zombied thread, heh,
Any lease can have an increase clause. The wording can state how the increase is calculated. Some landlords will use an established rate ((SS increase, CPI etc.). Some will be simple: rent is $$$ and the real estate tax today is $$. Any increase in RE tax will be passed on as a rent increase. Now make it interesting: any decrease in the rent will also be passed on…………vote accordingly for your rental cost!!!
Lets see, If I “owned” rental property, I would know from the get-go what the yearly taxes on “My Owned Property” would be plus every other possible cost associated with constructing rental dwellings on my property. I would also know the number of units created on my property. You Know You own the property, you know that the property owner owes property tax… divide your operating expenses by the number of rental units total and add that cost into the calculation of monthly rent. Owners own, renters temporarily borrow living space from the owner for consideration. I find a monetary based society creates greed……lets not be greedy, please……
If I am going to be paying property taxes on my rental space… During my paid occupancy, I want all the rights granted to a property tax payer, meaning take your rental rules and 24 hour entry notices and stick them where the sun don’t shine, my dear good man.
well this is my problem. we recently rented out my boyfriends house last may and we just found out the taxes went up $300. so because we have a signed lease for a yr. that doesnt include this extra cost, we have to dish out the extra cash to cover the increase in taxes. im guessing with a signed lease we cant change the amount until the end of the lease?
No, its a lease. Which is a contract. You can’t change it just because you made a bad business deal. Its one year and if a $300 tax increase (or even 3k) would put you underwater on renting out your home, you really have no business being in business. Did you even price any maintenance into the rent? Or do you think entropy is made up?
Renters already pay property taxes. Any taxes the landlord pays are factored into the rent he or she charges. Businesses have to charge customers enough to cover expenses and make a profit to stay in business.
this is an excellent idea to help cover the deficits. Somebody has to pony up for bloated pensions. The fly in the ointment is that rent’s are priced to what the market will bear. They have to be covered in cold hard cash. Land(lords) drop the hammer on any renter that is even one day late in rent, often at $50/day, and payable by money order or cashiers check only.
In contrast home(debtors) get all sorts of plush, easy financing, all backed by the federal government. Can’t afford a house at 10x salary? That’s ok, we have NINJA, Neg-AM, interest only, 0-down, etc. All this clever financial engineering improves home-debtor cash flow, which can be funneled to the city / state to help cover bloated pensions, Football stadiums, etc.
To all government workers, I say “Let them eat 401k”.