Chapter 14
Georgia Real Estate
An Introduction to the Profession
Eighth Edition
Chapter 14
Taxes and Assessments
Key Terms
ad valorem taxes
amount realized
assessed value
assessment appeal
board
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documentary tax
installment method
mill rate
tax certificate
tax lien
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Property Taxes
The largest single source of income in the
United States for local government programs
and services is the property tax. Schools, fire
and police departments, libraries, parks and
more are mainly supported by property taxes.
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Property Taxes
Property taxes are ad
valorem taxes. They are
levied according to the
value of one’s property.
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Budget and Appropriation
Each taxing body prepares its budget for the
coming year. Each budget is enacted into law
through the appropriation process.
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Budget and Appropriation
Estimated sales taxes, business licenses and
other taxes are subtracted from the budget.
The balance must come from property taxes.
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Appraisal and Assessment
The valuation of the taxable property within
each district must be determined. The
assessor’s office appraises each taxable
parcel of land.
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Appraisal and Assessment
The appraised value is converted into an
assessed value upon which the taxes are
based.
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Appraisal and Assessment
In Georgia, the assessed value is 40% of the
market value.
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Tax Rate Calculation
The assessed values of all properties subject
to property taxation are added together to
calculate the tax rate.
For example: the district requires $8 million
from property taxes and the assessed value of
property within the district is $200 million.
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Tax Rate Calculation
By dividing $8 million by $200 million, we
discover the district must collect a tax of 4% or
$4.00 per thousand dollars of assessed
valuation.
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Tax Rate Calculation
This levy can be expressed three ways:
• as a mill rate
• as dollars per hundred
• as dollars per thousand
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Tax Rate Calculation
Mill rate is the property tax rate that is
expressed in tenths of a cent per dollar of
assessed value.
As a mill rate, this tax is usually expressed as
dollars per thousand.
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Applying the Rate
Apply the mill rate to a home by multiplying the
mills by the assessed valuation.
Assessed value of $200,000 with a tax rate of
80 mills ($80.00 per thousand dollars of
assessed value)
200 x 80 = $16,000
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Applying the Rate
To ensure collection, a tax lien for this amount
is placed against the property. It is removed
when the tax is paid.
Property tax liens are superior to other types of
liens. A mortgage foreclosure does not clear
property tax liens; they still must be paid.
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Applying the Rate
Property tax years are assessed and collected
on a calendar year basis, January 1 through
December 31.
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Unpaid Property Taxes
If you own real estate and
you fail to pay the property
taxes, you will lose the
property.
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Unpaid Property Taxes
A redemption period follows during which the
owner can redeem the property by paying back
taxes and penalties.
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Unpaid Property Taxes
If redemption does not occur, the property is
sold at a publicly announced auction and the
highest bidder receives a tax deed.
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Unpaid Property Taxes
At the sale, a tax certificate in the amount of
the unpaid taxes is sold.
The purchaser is entitled to a deed to the
property provided the delinquent taxpayer
does not step forward and redeem it during
the redemption period.
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Unpaid Property Taxes
The redemption period for a tax sale in Georgia
is one year.
A lienholder is allowed to redeem a property if
the property taxes are not paid because the
lienholder's creditor rights in the property are
cut off due to the superiority of the tax lien.
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Assessment Appeal
Property owners can compare the assessed
value of their property with values on similar
properties. An owner who feels over-assessed
can file an appeal before an assessment
appeal board or a board of equalization.
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Property Tax Exemptions
More than half the land in many cities and
counties is exempt from real property taxes
because governments and their agencies do
not tax themselves or each other.
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Property Tax Exemptions
Most properties owned by religious and
charitable organizations are also exempt.
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Property Tax Exemptions
Georgia grants an assessment reduction
known as homestead exemption. This reduces
the amount of taxes owed on property used as
a primary residence.
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Property Tax Variations
The amount and type of
taxable property in a
community affects local tax
rates.
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Special Assessments
Local municipal improvements that will benefit
property owners within a limited area are
financed through special assessments on
property.
The property receiving the benefit of an
improvement in the area bears the cost of the
improvement.
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Calculating a Home’s Basis
Income taxes are due if you sell your personal
residence for more than you paid.
The first step in determining the amount of
taxable gain upon the sale of a residence is to
calculate the home’s basis.
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Calculating a Home’s Basis
The basis is the price originally paid for the
home, plus any fees paid for closing services
and legal counsel, and any fee or commission
paid to help find the property.
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Calculating a Home’s Basis
Improvements made by the seller are added to
the original cost of the home.
Adding a bedroom, installing a new roof,
paving a new driveway are classed as
improvements and are added to the home’s
basis.
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Calculating a Home’s Basis
Maintenance and repairs are not added, as
they only maintain the property in ordinary
operating condition.
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Calculating the Amount Realized
The amount realized is the selling price of the
home, less selling expenses.
Selling expenses include brokerage
commissions, advertising, legal fees, title
services, closing fees and mortgage points
paid by the seller.
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Calculating Gain on the Sale
The gain on the sale is the
difference between the
amount realized and the
basis.
This is the amount to be
reported as gain on the
seller’s annual income tax
forms.
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Calculating Gain on the Sale
$90,000 Purchase price + $500 closing costs Basis
$ 90,500
$3,500 landscaping and fencing
Basis
$ 94,000
$15,000 Bedroom and bathroom
Basis
$109,000
$125,000 Sales Price
$8,000 commissions and closing costs Amt. realized $117,000
Amt. realized
$117,000
Less basis
-$109,000
Equals gain
$
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8,000
Income Tax Exclusion
A taxpayer can exclude $250,000 of gain from
the sale of the taxpayer’s principal residence.
If the taxpayer is married, there is a $500,000
exclusion for married individuals filing jointly.
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Income Tax Exclusion
The taxpayer must have lived in the home for
two of the last five years.
This exclusion cannot be taken more
frequently than once every two years.
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Capital Gains
Capital gains tax is a tax
levied on an investment.
Stocks, bonds, precious
metals, real estate or
anything else purchased
with the hopes of making a
profit.
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Capital Gains Tax Rate
Tax Bracket
1/1/01 –
5/5/03
10% & 15%
8% / 10%
20%
25% & up
5/6/03 –
12/31/07
2008
2009
5%
0%
10%
15%
15%
20%
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Installment Method
When a gain cannot be excluded, a popular
method of deferring income taxes is to use the
installment method of reporting the gain.
If you sell for all cash, you are required to pay
all the income taxes due on that gain in the
year of the sale.
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Installment Method
A solution is to sell to the buyer on terms
rather than to send the buyer to a lender to
obtain a loan.
The gain would then be taxed at the income
tax rates at the time the installment is
received.
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Property Tax and Interest Deductions
A homeowner can deduct real property taxes
and personal property taxes from other income
when calculating income taxes.
This applies to single-family residences,
condos, and cooperatives.
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Property Tax and Interest Deductions
Interest paid to finance the purchase of a
home is deductible against a homeowner’s
other income.
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Interest Deduction Limitations
All of the interest is deductible on a loan to
purchase a first or second home.
The ability to deduct property taxes and
mortgage interest becomes more valuable in
higher tax brackets.
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Agent’s Liability for Tax Advice
A real estate agent is liable for tax advice (or
lack of it) if the advice is material to the
transaction and to give such advice is common
in the brokerage business.
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Agent’s Liability for Tax Advice
An agent should have enough general
knowledge of real estate tax laws to be able to
answer basic questions accurately, and to
warn clients and recommend tax counsel if the
questions posed by the transaction are beyond
the agent’s knowledge.
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Agent’s Liability for Tax Advice
An agent is responsible for the quality and
accuracy of tax information given out by the
agent.
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Transfer Tax
Georgia requires a conveyance tax more
commonly referred to as a transfer tax when
the deed is recorded.
The rate is $0.10 per $100 on the adjusted
sales price.
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Transfer Tax
The adjusted sales price is the sales price
minus any assumed loan.
These fees are paid to the county recorder
prior to recording and are in addition to the fee
for recording itself.
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Intangibles Tax
Georgia also charges a separate tax on the
value of any mortgage debt created by the
transaction.
The intangibles tax is paid at a rate of $1.50
per $500 (or any part of $500) of any new
recorded loan.
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Transfer Tax and Intangibles Tax
Example: A home sells for $100,000 with a
new loan of $80,000.
The transfer tax would be calculated as
follows:
$100,000 ÷ 100 = 1,000
1,000 x $0.10 = $100.00
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Transfer Tax and Intangibles Tax
Example: A home sells for $100,000 with a
new loan of $80,000.
The intangibles tax would be calculated as
follows:
$80,000 ÷ 500 = 160
160 x $1.50 = $240
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Transfer Tax and Intangibles Tax
When calculating transfer tax and intangibles
tax, remember to round up your calculations.
Transfer tax is always divisible by $0.10.
Intangibles tax is always divisible by $1.50.
If there are pennies in your answer,
you didn’t round up.
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Transfer Tax and Intangibles Tax
Example: A home sells for $344,050 with a
new loan of $309,600.
Transfer tax would be calculated as follows:
$344,050 ÷ 100 = 3,441 (round up)
3,441 x $0.10 = $344.10
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Transfer Tax and Intangibles Tax
Example: A home sells for $344,050 with a
new loan of $309,600.
Intangibles tax would be calculated as follows:
$309,600 ÷ 500 = 620 (round up)
620 x $1.50 = $930.00
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Transfer Tax and Intangibles Tax
Example: A home sells for $132,400 with an
assumed loan of $51,000.
Transfer tax would be calculated as follows:
$132,000 - $51,000 = $81,400
$81,400 ÷ 100 = 814
814 x $0.10 = $81.40
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Transfer Tax and Intangibles Tax
A home sells for $250,000 for cash.
There would be no intangibles tax because
there is no loan.
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Transfer Tax and Intangibles Tax
Transfer tax is usually paid by the seller, but it
is negotiable.
Intangibles tax is usually paid by the borrower,
but it is negotiable.
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