## Friday, January 11, 2019

### Property tax present value

How much is the property tax? In Calfornia, we pay 1%  per year.

That doesn't seem bad, except that property values are very high. You can't get a tear-down in Palo Alto for under \$2 million. If you buy a house that costs 5 times your income -- say someone earning \$200,000 per year buying a \$1 million house -- then that is equivalent to 5 percentage points additional income tax.  On top of 42% federal, 13.2% state, 9% sales, and other taxes, it's part of my view that we're past 70% top marginal rate now.

The other way to look at taxes is in present value. At 1% interest rate, the value of a 1% payment is \$1.00. What that means: Suppose you bought a \$1,000,000 house. It's going to cost you \$10,000 in property taxes per year. Let's set up an account that will pay your property taxes. If you get 1% interest on that account, you need to put \$1,000,000 in the account!

A 1% property tax at a 1% interest rate is equivalent to a 100% tax on houses. That \$1,000,000 house is really going to cost you \$2,000,000!

There is a general paradox here: The top two things our politicians say they want to encourage are jobs and homeownership. Jobs are perhaps the most highly taxed economic activity in the economy, and by this calculation houses come in a close second.

(California also assesses a 1% personal property tax, on top of a sales tax, for anything they can prove you own, which usually means boats and airplanes. That too is an additional 100% tax.)

The second lesson, the value of wealth taxes depends sensitively on the interest rate, as I'm sure some of you are chomping at the bit to point out. If the interest rate is 2%, then the tax rate is "only" 1/0.02 = 50%. If the interest rate is 5%, then the tax rate is 1/0.05 = 20%. I suspect these taxes were put in place in a time of higher interest ares and nobody is really thinking about the effect of lower rates.

Similarly, suppose the government puts in a 1% per year wealth tax. If wealth generates a 5% rate of return, then the 1% wealth tax is the same thing as a 20% one-time confiscation of value*.  If wealth generates a 1% rate of return, a 1% wealth tax is a 100% confiscation of value**. Mercifully, our income tax system taxes the rate of return, not the principal, and avoids this conundrum. Others do not.

What is the right rate? We can have a lot of fun with that one. The current 30 year TIPS (inflation indexed) rate is 1.19%. The 30 year nominal Treasury rate is 2.97%.  In California, under Proposition 13, you pay 1% of the actual purchase price per year, but that quantity never increases. (This fact results in the paradox of extremely high property taxes on new purchasers, older people staying in huge old houses, and low property tax revenues.) So you might say that the nominal rate applies.

In Illinois, you pay a percentage of assessed value, which is usually a good deal lower than the actual value. (It also leads to a fun game of fighting over what the assessed value is. No surprise some of Illinois' most powerful politicians are also lawyers whose firms argue property assessment cases. ) That means however that the real interest rate matters.

But in both cases, we need to use the after-tax rate. If you put your money in a 30 year treasury (or a long-term bond fund that keeps a long maturity), you pay taxes on the interest. If your marginal tax rate (federal + state + local) is 50%, that means you only get half the interest. So that 3% nominal yield is really a 1.5% nominal yield, and the Californian should use a 1.5% rate, resulting in a 1/0.015 = 66% tax rate.

The tax treatment of TIPS is more complicated. (Really, inflation protected bonds are a great idea, but did the Treasury have to screw up the tax treatment so thoroughly?) You pay taxes on the nominal interest payments, and also on increases in principal value. This causes an accounting mess that I don't want to get into here, but as a rough guide, if you are in a 50% marginal tax bracket, then you need to buy \$200 worth of TIPS to generate a \$1.00 after-tax stream. So, if you live in a state where property tax assessments rise over time, we're really talking about 2  x 1/0.01 = 200% tax rate on the initial assessed value.

Now, house prices rise more than inflation. That argues for an even higher present value of taxes.

On the other hand, you're not going to keep your house forever. But you will sell it, and the price reflects the property tax. On one extreme, if there is no house supply, then the price reflects the full property tax. Without property tax, you could sell it for double the current value. Then these calculations are right. That's a good approximation for Palo Alto. If house supply is flat, then the house price equals construction costs, and we need to cut off these present values at your horizon for owning the house.

The back of my envelope is full.

I'm not very good at taxes, so I welcome comments and corrections on this.  Also if it's all standard stuff, send a pointer to the source.

*sum_j=0^inf (0.05 - 0.01)/(1.05)^j = 0.04/0.05 = 0.80 = (1-0.20) x sum_j=0^inf 0.05 / (1.05)^j

**sum_j=0^inf (0.01 - 0.01)/(1.01)^j = 0 = (1-1) x sum_j=0^inf 0.01 / (1.01)^j

Update: Thanks to several commenters who point out that California property tax rises at the lesser of inflation or 2%. This means that the lower real interest rate is the right discount rate, not the higher  nominal interest rate.

1. Yes, that 1% interest rate is a doozy.

Suppose you get a VA pension at \$50,000 a year.

The US government, to fund that \$50,000 a year, should set up a fund of \$5 million. And that's the pension, not including the free-for-life health care!

It would be cheaper to offer a \$1 million bonus or lump-sum to federal employees who retire from the military, and wipe out the VA.

1. The Federal gov't being monetarily sovereign in USD's has no real need to save or invest in USD's. So they could simply issue the \$50K by raising your bank account score. And yearly as long as you live. In the end far less than \$5M, I can guarantee! And maybe less than the \$1M.

2. I'm a big fan of a (moderate) wealth tax, in particular when implemented like in Switzerland. Here, it is about 0.5% (depending on your wealth and residence) and applies to all form of wealth. In return, there is no capital gains tax (at least for private citizens). From an incentive point of view, this makes a lot of sense, as a capital gains tax punishes those who employ their capital productively in comparison to those who just sit idly on it. Also, it is much more subtle than an inheritance tax of say 30% even though over the course of a life-time it amounts to about the same.

1. I agree. Listen, Bill Clinton imposed 1% wealth tax and paid off all national debt. But greed keeps attacking us. All states should push that back with property tax breaks like they have in California. Some thoughts on the greedy attack on property tax breaks in California…. 2020 Proposition 19 has limited property tax relief from Proposition 58, watering down the Parent to Child Exclusion, forcing inheritors of property from parents to move into an inherited house within a year, only as a primary residence – no more investment properties are able to avoid property tax reassessment as things were prior to Prop 19. But it could be a lot worse! I’m sure if CA Association of Realtors (C.A.R.) and other greedy supporters of Proposition 19 had their way, property tax relief in California would have been done for completely! They would have completely destroyed property tax transfer, our ability to transfer parents property taxes when inheriting property taxes… and to keep parents property taxes through parent to child transfer. As well as locking in a low property tax base while buying out siblings’ inherited property through Proposition 58 and a trust loan. All of these tax benefits would have disappeared had brave souls not fought for them. CA property owners & new beneficiaries can get more familiar with process nuts & bolts at websites like https://propertytaxnews.org and https://loantoatrust.wordpress.com and learn more about property tax breaks at property tax specialist sites such as https://michaelwyattconsulting.com and from Prop 58 experts and trust lenders like https://cloanc.com/california-proposition-58 It goes to show us that with some opposition to unreasonable tax measures looking to squash property tax relief in California – even with millions of dollars from the CA Legislature and organizations supporting special interests such as realtors, tax measures that attempted to totally unravel Proposition 58 and Proposition 13 were slowed down… or totally stopped (like Proposition 15, which sought to kill all property tax relief for commercial property owners). Perhaps greedy parties seeking to destroy all tax breaks for the middle class, while ramping them up for the rich, were not stopped completely… but were, at least, slowed down to a large degree.

3. The trouble with property taxes is that the rate isn't a function of budget and home values. If home values double quickly (even corrected for increased local wages), jurisdiction costs don't scale up with valuations , and so rates should decline. Instead, jurisdiction keep rates mostly the same, treat extra revenue as a windfall, and, in the nature of governments, immediately find ways to inflate the budget and spend it. And, with chutzpah, will still come back a few years later and say there isn't enough money for schools or roads, when real per capita revenue is as high as ever.

4. John,

What do you think of (Cowen's, I believe, though I may be poorly paraphrasing!) the argument that a wealth tax might be beneficial because it incentivizes effective investors and punishes bad ones? As you note, a 1% wealth tax effectively gobbles up the entirety of a 1% rate of return appreciation, but is a miniscule tax if I'm earning a return of, say, 10%.

5. Are property taxes considered more efficient than income and capital taxes? Should that be rethought?

6. > John Cochrane.
"That \$1,000,000 house is really going to cost you \$2,000,000"
So what is the market price to buy the house without the tax.
Is it \$2,000,000.

7. I think an alternative way of seeing the effect that property tax has on property taxes would be to see how if effects ROI.

If the ROI in an economy is 4% then a house that provider \$40000 a year rent would be worth \$1000000. If a property tax of 1% was introduced then the value would drop to \$800000 to maintain the 4% ROi (with \$8000 paid in tax).

8. As soon as I had enter I realized this was the same as saying that if I buy a house for \$800000 and I have to pay 1% property tax I would need a pool of \$200000 to fund this - which takes one back to the \$1000000 that it would be worth without the tax.

9. Treasuries are not taxed at the state and local level. The fact that they are taxed at the federal level for individuals (effectively the Treasury pays you less interest than they pay the Chinese) is an abomination.

10. You lost me in the first paragraph. \$2mil teardowns are the rare exception. For myself I bought a house 2.7 times my income. My property taxes are about a third of what I paid in Texas on a house that was worth about half as much. Throw in income and an extra 1% sales tax and I'm still better off tax wise here in California than Texas. That's the way to look at these things, how they work for you personally.

1. I'm curious about the details of this comparison: "my property taxes are about a third of what I paid in Texas on a house that was worth about half as much."

Is that saying that annual property tax in your particular local political subdivision(s) of California is a lot less of a home's fair market value than the 1% figure cited by Cochrane? I personally pay annual property tax that comes out to about 2% of home value in Texas (Austin). (The detail of how that calculation is built up is a bit more complicated due to various homestead exemptions on primary residences, but the percentage doesn't change that much once you get beyond a really low value residence.) That 2% figure for me seems to be pretty much in line with the average across Texas (1.9% based on a quick Google search). Starting with John's 1% figure and then using your personal math would imply that you paid annual property tax of 6% of home value in Texas, which seems shockingly - indeed, implausibly - high relative to the average in the state.

11. A related by separate concept. I'd love to see someone experiment with a property tax as a pigouvian tax. Right now, property owners are incentivized (by national narrative and favorable tax policies) to think of homes as investment. They are NOT. They are consumption. In seeking to protect homes as investments, we've incentivized NIMBYs to be NIMBYs because they get paid to fight development. I think those are bad incentives.

Instead we want people to think of housing as consumption. We all win when prices are LOWER. I know what a shocker! Imagine if we all celebrate when drug prices went up because we all owned shares in Pharma stocks. That would be bizarre. But when home prices go up we see headlines like "Housing Market has it's best run in 10 years"

So here's an idea. A pivouvian tax on homes. Ed Glaeser has calculated a minimum profitable production cost (MPPC). In Texas MPPC is something like \$200 / sqft (if I recall correctly). In California, it's more like \$270 / sqft. Now, in California, property prices are closer to \$600ish / sqft. How can that be that the MPPC is \$270 and the market price is \$600? Answer, people are obstructing the market and do everything they can to stop development.

If homes were taxed at 100% of anything above MPPC (\$600-\$270 * 1) * the discount rate of say 3%. That equates to around \$10 / sqft. That way if you want to keep out new neighbors, you can, but you'd have to pay for it! That seems reasonable, depending on how you feel about the rights of current versus prospective residents.

This idea is very rough. I welcome feedback. The general idea is to get rid of the incentive to be a NIMBY. The above aproach is just a simplistic sketch. Of course \$10 / sqft is probably below current tax rates. I don't know what that means. Maybe that you should have a two tiered tax system. Tier 1: how much money we need to operate the city. Tier 2: the pigouvian tax. Maybe, it means pigouvian tax on Excess \$ / sqft should be above 100% times the discount rate.

Like I said this is a rough idea. Feel free to provide feedback. There is a huge housing problem in this country and incentivizing housing as investment is (arguably) a large part of the problem.

This is a rough idea, so very welcome to provide feedback.

12. Wait - where'd you get the 1% interest from? If you pick a different number, say 2% or 3%, for your investment returns then your calculation of the present value of the tax changes drastically.

Separately, I don't think it makes a lot of sense to include property tax when calculating your **marginal** tax rate. Your income doesn't directly impact your tax rate, nor vice versa.

13. And the Democrats are still trying to repeal Prop 13. They want those 1% property tax rates to rise. The reason Prop 13 was voted in was because property taxes were based on assessed values, which were pricing people out of their homes. Don't be surprised if Democrats want to do that again.

14. Too much math

15. With strict zoning and land use laws and consequently a restricted housing supply, "the [house] price reflects the full property tax." So, a property tax falls mostly on the burden of the homeowner when the tax is announced. How does this impact the marginal dollar you receive from your employer? The answer seems implicit in this post, but I think I need to be hit over the head with it. Of course, income, payroll, corporate, capital gains, estate, sales, and gas taxes (and of course cross-subsidies!!!) already push the marginal rate well over 70%

1. Well said. taxes, writ large, though not exhaustive, include; federal, city, state, payroll, capital gains, property, estate, corporate, sales, gift, excise, import,licenses and occupational, user fees, tobacco, alcohol, custom and border protection, tariffs, inflation, hotel, carbon, fat, soda, stamp duty,transfer tax,vehicle excise, development impact, tuition, seigniorage, ad infinitem.

16. I wrote two long comments on my phone and see they are not posted here. Unfortunate.

Anyway, I thank John for the post. Thought-provoking as usual.

However, I believe some implications got left off the napkin.

#1: It's true that low interest rates raise the present value of future tax liabilities. But low interest rates *also* raise the present value of future housing services generated by a house. This, I believe, is why house prices go up with low interest rates, rather than down.

To illustrate this point, imagine that interest rates fell to 0%. Would people stop owning houses due to the infinite tax liabilities? No, of course not. People would still choose to buy homes rather than live on the streets. And that's because the infinite housing service benefits would outweigh those tax liabilities.

#2: The incidence of property tax is not 100% on the owner of the property. Some of it falls on builders.

#3: Property tax doesn't seem like it should count as marginal income tax. First, after I make the decision to buy a house, the tax is a fixed cost, not a marginal cost. (Of course, those taxes change which house I buy, and the problem gets complicated. But it's not simply additive.) Second, a tax on a class of good is *very* different than a tax on income or all goods. That's because I can shift my consumption away from the taxed good. So if property taxes go up, I'll buy fewer houses and more vacations, or something. The same cannot be said for income tax, where I only have two choices: work more or consume less.

Hope this sparks some ideas in you folks as well.

John - if you ever want to grab lunch, I'd be happy to come up to Hoover/Stanford. I graduated just a couple years ago. (And of course fine if not, which is the probable answer.)

17. You know, I think I might be wrong with point #1 in my last comment. I apologize if I was uncharitably presumptive. I'm still trying to think through this.

18. I've been in my California house almost 40 years. I bought it in 1980 for around \$115k -- the property tax was somewhere between \$1200 to \$1500 per year. This year the house is valued around \$600k to \$650k and my property tax bill for the year is just under \$2500.

I live in a low-growth middle class/working class community with all kinds of codes for builders and home improvement -- I've put over \$200k in modernizing the house. And we have an affordability problem here also for working class folks.

If there is some place in this country better than that, please let me know.

https://www.facebook.com/photo.php?fbid=2263392360372349&set=pb.100001048219334.-2207520000.1547281970.&type=3&theater. I posted this with the comment: "For Millennials; why grandpa and grandma could afford a house in the 1960s and 1970s."

19. Two points:
(1) Property taxes in one sense are a tax on the imputed income from occupying a house you own. Don't add the property tax to your tax burden without adding the related implicit income (plus the accruing anticipated capital gains). Property taxes are also partly a user fee to pay for the public services the "house" consumes.
(2) For me, Proposition 13 was point in time where American public policy went off the rails.

20. Perhaps off topic but (for me) a very interesting point:

"The current 30 year TIPS (inflation indexed) rate is 1.19%"

It seems to me that the 1.19% rate for 30 years is so low that it suggests that the market feels that the inflation index being used systematically overstates inflation by somewhere between 0.5% and 2% per year. I could believe a long run safe real rate of return in the 1.75% to 2.5% range but not 1.19%.

21. Just one minor correction -- in CA, the assessed value of your home can be increased annually by a factor of 2%. It can also be reduced below that ceiling if market prices fall, and then reraised if they climb etc. Also, property tax measures can be put on the ballot and passed (e.g. parcel taxes for school funding), and these can add up to a substantial part of the bill.

22. Regarding Prop 13: my intuition was that its design was to allow retirees to stay in their homes, knowing full well property would appreciate but eventually retirees would have lower incomes, since they're not working.

My cousin who just got elected to a school board in Southern Cal is dealing with the issue of reduced enrollment because people are fleeing, even with an effective property tax rate of 0.7%, one of the lowest in Southern Cal. But, homes are becoming too expensive to stay in for a host of reasons, and valuations affecting property tax burdens is one of them. Economics is affecting education budgets as a result. Not happy times.

So, that home you buy for 500k, tack on x% over the term of the loan. And, with rules affecting property tax deduction and MITD, well, just got more expensive to own a home. If you're swimming in cash, not a problem. But how many are swimming, hmmm? (Go look at the Gini Coefficient for the entire US...) A side tentacle, I know, but Prop 13 affecting local budgets and fiscal decisions is a challenge.

23. California property taxes are explained in some detail in a November 2012 publication by the Legislative Analyst's Office here:
https://lao.ca.gov/reports/2012/tax/property-tax-primer-112912.aspx

Taxation of real property other than real estate by the State of California is also described in the publication.

The assessment value of real estate is not determined by fair market value except in the first year of ownership when the assessment value is set at the price paid for the property by the owner. Thereafter, the assessment value is increased at the lesser of 2% or the rate of inflation annually, under proposition 13. If the real estate property market declines such that the fair market value of the property drops below the then current assessment value, the assessment value can be reassessed at the then current fair market value, but only if fair market value stays below the then current proposition 13 assessment value, under proposition 8. A principal residence exemption of \$7,000 is applied each year (proposition 13). The ad valorum property tax rate is set by statute at 1% of the assessment value, state-wide, and is paid to the county from which the taxes are raised.

For long-term residents who do not move frequently or upgrade their home (exceptions apply), the property tax payable is generally less than for those who move frequently or those who move to California and buy a principal residence (e.g., J. Cochrane and family). Such families pay higher property taxes, individually, than their neighbors do who purchased their residences many years earlier.

The effect of property taxes on all direct and indirect personal taxes payable does seem to be too complex to be generalized for the purpose of determining a gross marginal tax rate for comparison against the Diamond et al. 'optimal' tax rate, etc.

One interesting side-effect, little known, arises when American economics PhDs move to Canada to take up university lectureships in economics at Canadian universities. Invariably, American PhDs misapprehend the property tax methods applied by Canadian municipalities and provinces, mistaking the low property tax rates applied to current fair value market assessments for "tax subsidies" because the mil rates are seemingly far too low when judged against American real estate property taxes. Instead of 1% of a non-market assessment value, the Canadian home owner pays 0.2% of the fair-value market assessment each year. The American PhDs assert that this is "unfair", and consequently call for Canadian real property owners to pay 1% to 2% of the assessment value (i.e., fair market value) each and every year irrespective of whether the municipal government needs the money or not--American PhDs assume that they could "use" the money to do any number of social engineering experiments that a benign central planner could conceivably devise if only given the time and the resources to come up with. Since the American PhDs are only guest workers in Canada and there only for a short term teaching stint, their calls for higher property tax rates generally fall on deaf ears. Cultural differences between nations do have some interesting, if odd, effects when exchanges are made. This is one of those instances, where American experience and norms are not directly transferable but make for interesting story-telling. It may also be why Canadians generally describe themselves to non-Canadians as "not Americans".

24. I was writing a check to the county as this was published and I like the perspective of property tax as part of the overall tax rate. Most of the houses in question are a temporary mirage. So I think the reality economists would say enjoy them while you can and quit whinging.

My grandfather,early 1900s, had a solid three story house in the Irish ghetto of Torrington CT. It is still standing. In busy seasons his teamsters ( we are talking real teams) bunked on the third floor and were fed at least a couple of meals in a common dining room. The same group ran the fire station so there was an extension of the fire bell in the hall.

You could at least pretend a house like that was productive, self-amortizing and justified the embedded energy. The modern house is so dependent on subsidies from cheap fossil fuels that self- amortizing is never even considered. The same is true of of a million dollars that earns any interest whether 1% or 10%. It is an artifact of cheap energy or otherwise known as legacy energy. Real wealth rots or rusts.

It has been a short historical period in which people did not live in their store, their workshop or with their farm animals. The main tax on the modern house is entropy and the ninety percent of "chaos" that accompanied the million dollars worth of "order" that the house represents. ( I know it's complicated, some of the chaos is in the price, some of the price is in the chaos). You get the general drift, and remember it was already unsustainable when Shakespeare was living with the pigs and goats, occasional new straw in Stratford.

25. There appears to be a misapprehension in the article: The present value of future property taxes payable is asserted to be a takings of the principal value invested in the property. This cannot be correct insofar as the property tax collected is returned to the county in which the property is located and the county government and its various sub-county level governments turn those revenues into services and public goods for the benefit of county residents directly or indirectly.

The property owner is not deprived of the use, occupation or quiet enjoyment of the property he or she acquired through purchase of the property. The principal value cannot be said to be confiscated by the government through the vehicle of the property tax, because the owner can monetize the value of the property at any time by way of a sale/purchase agreement. For example, if the tax becomes too burdensome, the property owner can dispose of the property for its fair market value to realize the original investment plus or minus a capital gain or loss on the original investment. In the interim, the property owner has had the use of the property and the amenities of the community in which the property is sited, the anticipation of which determined (in part) the value placed on the property by the owner at the original purchase date, and the self-appraisal of that value on the date of each subsequent reinvestment decision (if any) made by the owner in the form of improvements or renovations to the property over the course of owner's tenure.

The analyst needs to consider the benefits that the taxpayer receives along with the costs the taxpayer is burdened with when considering the net present value of the discounted stream of future tax payments. Consideration of the value of ownership benefits is absent in the article. Perhaps this is so because "the back of the envelope" was filled up before the analyst turned to the consideration of the benefits of ownership. If so, a follow-on article exploring the balance between costs and benefits might be a welcome addition to the blog space.

26. Well, it seems that part of your home's value is really the value of the land under it. Since land supply is fixed, there wouldn't be any more land if there were no property tax. So it seems that if you abolished this tax tomorrow most of the savings homebuyers will see from no property taxes in the future will be cancelled out by the increased land price. As a result, I suspect that large part of Californian property tax was paid by the homeowners back when it was first established - and, provided you bought a home after that day, you haven't paid that much tax.

27. As always, fantastic. If I started a country, I would abolish all taxes except a fixed (%) and flat VAT. Housing prices would certainly increase!

28. 5% property tax has zero impact on marginal tax rates. \$200K income marginal rates are: 32% FIT, 9% CA, 0% SS, 3% Medicare (?). (All assuming minimal deductions.) Sales tax has impact is questionable, but spending 100% post-tax marginal dollars (rather than saving/investing) results in 5%. So for every marginal dollar, the worker would have 0.5 on goods and services.

29. I believe in moderate wealth tax, in particular when implemented like in Switzerland. Here, it is about 0.5% (depending on your wealth and residence) and applies to all form of wealth. In return, there is no capital gains tax (at least for private citizens). From an incentive point of view, this makes a lot of sense, as a capital gains tax punishes those who employ their capital productively in comparison to those who just sit idly on it. Also, it is much more subtle than an inheritance tax of say 30% even though over the course of a life-time it amounts to about the same.

30. I believe in moderate wealth tax, in particular when implemented like in Switzerland. Here, it is about 0.5% (depending on your wealth and residence) and applies to all form of wealth. In return, there is no capital gains tax (at least for private citizens). From an incentive point of view, this makes a lot of sense, as a capital gains tax punishes those who employ their capital productively in comparison to those who just sit idly on it. Also, it is much more subtle than an inheritance tax of say 30% even though over the course of a life-time it amounts to about the same.

31. "That \$1,000,000 house is really going to cost you \$2,000,000"

Building on Dinero's comment above, did you really buy what would have been a \$2M house with no property tax for \$1M due to property tax? Regardless, it seems like (possibly imputed) rental income (net of maintenance, insurance, and other home ownership costs) as a percentage of property value is more relevant than interest rates. Suppose one can earn 5% in net rental income from owning a home. If the government taxes homes at 1%, then isn't that equivalent to the government owning 20% of the home and the nominal homeowner actually owning only 80%? If property tax rates and rental income rates never changed, then you would know at the time you bought the house that you were actually only buying an 80% economic interest in the home, so you would only pay 80% of what you would have paid if property tax rates were zero. So, it seems like the lifetime property tax was actually paid by the property owner at the time that property tax rates were first expected to be raised from 0 to 1%, paid in the form of a one-time drop in property values.

Now, in reality, net rental income rate changes over time (in part due to changes in interest rates) and property tax rates could also change or be expected to possibly change. It would seem though that property values would fluctuate in response to these changes in expectations so the payer of property taxes is actually whoever owns the property at the time expectations change. In turn, that would seem to imply that if actual rental income and property tax rates turn out to match the expectations at the time you bought your house, then you wouldn't pay any property tax. Your home purchase price already would have been discounted to reflect the expected property taxes. Is that right?

32. yarh..Treasuries are not taxed at the state and local level. The fact that they are taxed at the federal level for individuals (effectively the Treasury pays you less interest than they pay the Chinese) is an abomination. I personally pay annual property tax that comes out to about 2% of home value in Texas (Austin).

33. Unless there is anything contrary in the contract between the landlord and tenant, it is the duty of the landlord to pay property tax. However, a tenant can pay property tax if the landlord is unwilling to pay and can legally adjust the amount from the monthly rent to be paid.
Looking stamp duty calculator

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