wealth tax

Here’s What Could Change Your U.S. Property Tax Bill in 2022, and Beyond


Rising U.S. property values, potential changes to federal taxes and concerns over Covid-19 related gaps in local budgets may have some homeowners wondering what’s ahead for property taxes in 2022. 

Of course, what Americans pay in property tax varies from state to state, but for most people, there’s no reason to panic, not yet.  

Rising property values will likely increase property tax liability, but that won’t happen automatically. Many homeowners won’t see a change in the assessed value of their home until their local assessor deems fit. That could be this year, or it could be five years from now, depending on the schedule of the assessor’s office. 

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Some municipalities are raising rates to cover expenses, but because of federal funding, those increases may not be as steep as in previous years. Other areas are lowering property tax rates to help give residents a break after a trying couple of years. 

In addition, well-heeled homeowners may get a break in the form of increased state-and-local-tax deductions. The so-called SALT deductions have caused consternation for many since they were capped to $10,000 in 2017, and lawmakers from high-tax states have been trying to get that limit repealed ever since. Efforts are underway to raise the SALT deduction cap to $80,000 in the Build Back Better bill, which passed the House last month. 

And although the proposed limits to 1031 exchanges—which allow real estate investors to defer capital gains—are off the table for now, the Biden administration may choose to resurrect the initiative in the future. 

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Up, Up and Away

By the end of the year, median prices in the U.S. are expected to be up 12%, according to a report last week from Realtor.com. Eventually that will lead to higher property appraisals and therefore an increase in property tax bills. But that change may not be immediate. 

“It depends on where you live as to when those changes in property values that we are seeing take place,” said Marc Pfeiffer, senior policy fellow and assistant director at the Bloustein Local Government Research Center at Rutgers University in New Brunswick, New Jersey.

For instance, in the Garden State, some municipalities conduct annual reassessments, while others divide their jurisdiction into regions and reassesses one area per year for a few years. So, if a city is broken up by the assessor into three districts, each will be reassessed once every three years. Still other municipalities in New Jersey may wait five to seven years and have the whole municipality reevaluated at the same time, according to Mr. Pfeiffer. 

In that case, it could be years before a homeowner sees the result of rising property values on their tax bill, he noted. 

Some areas may also see higher property tax rates as cities look to fund services during the Covid-19 pandemic. However, federal funding has offset that in many communities. 

Take Chicago. Mayor Lori Lightfoot’s budget, approved by the Chicago City Council in late October, sets out a $76.5 million increase to the property taxes, less than the $94 million rise in 2021. Homeowners with a property valued at the average price of $250,000 will see a $38 bump in their bills, according to city officials. 

Properties in the Windy City were reassessed this year as part of a three-year process in Cook County. “Surprisingly robust real estate trends” have been seen throughout the county, but the average increase in residential tax bills was about 1%, according to Scott Smith, a spokesman from the Cook County Assessor’s office.

Other areas, including several municipalities in Florida and Texas, are lowering rates to give taxpayers a break or to keep revenues under state-mandated levels. 

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Pass the SALT 

Affluent homeowners in New Jersey, as well as other high-tax states such as New York, Illinois and California, may also be keeping an eye on the changes to the state-and-local-tax deductions which is currently part of the Build Back Better bill. 

“It is a significant issue in the wealthier parts of New Jersey, in those places where taxes are significantly above the state average of around $9,000,” Mr. Pfeiffer said. “Just because people are wealthy, it doesn’t mean that they don’t wince when they’re writing that check.”

The version passed by the House of Representatives last month will raise the $10,000 cap on the deduction for state and local taxes to $80,000 through 2030, The Wall Street Journal reported. 

Democratic leaders have been trying to repeal the $10,000 cap on so-called SALT deduction since it was introduced in the Trump administration’s Tax Cuts and Jobs Act of 2017. Previously, there was no cap, meaning taxpayers could deduct all their property and state income taxes from their federal income taxes. Currently, the deduction cap is set to expire at the end of 2025. 

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It remains to be seen if the increased SALT cap will survive as the Senate debates the bill, which Democrats hope to push through by the end of the year.  

Not included in the bill is the proposal to limit the 1031 exchanges that allow investors to defer capital gains taxes on the sale of property. Currently, investors who sell properties at a profit can reinvest the money in another “like-kind” property, thus deferring capital gains taxes. That process, which is subject to certain rules, can be repeated and investors can avoid the fees indefinitely. 

Earlier this year, the America’s Families Plan tried to cap the amount investors can defer at $500,000 for individuals and $1 million for couples, according to Jesse Little, senior director of wealth planning at Wells Fargo Private Bank. Although the proposal was scrapped for the current legislation, “it’s not off the table.”

“It’s definitely still important for investors to keep in mind because there’s no real certainty on what might happen over the next couple of years,” Mr. Little said. “It could certainly be a part of a next wave of potential changes.”


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