Defrauding the
Government with
Deflated Appraisals?
Sep 05, 2006, 12:00
pm PDT
In high-rent districts, where property taxes are in the nose-bleed
section, some buyers
and sellers are
giving themselves a
much needed tax
break. To cut
capital gains taxes
and trim property
taxes, buyers simply
pay a portion of the
purchase price in
cash, off the books.
Buy a million
dollar house for
$750,000, slip the
seller $250,000 cash
under the table, and
instead of paying
property taxes on a
million dollar
property, you pay
property taxes on a
$750,000 property,
and the seller gets
to pocket $250,000
in profits tax-free!
Similar tactics
are commonly used in
new construction. A
homeowner may hire a
builder to build a
$400,000 house with
$75,000 in extras
and pay for the
extras in cash, to
lower the value of
the property on
paper.
To buyers and
sellers, such deals
are savvy financial
transactions. After
all, doesn't the
government pocket
enough of your
hard-earned cash
through income
taxes, sales taxes,
and a host of other
taxes? Should
homeowners be
penalized whenever
housing values
skyrocket? Do the
costs of schools and
government
operations rise that
much to justify the
hike in taxes? These
are valid questions,
but until they get
sorted out and the
government revises
the tax code, any
grass roots efforts
to avoid taxes are a
form of tax evasion,
collectively
defrauding the
government out of
billions in tax
revenue every year.
I'm no advocate
for higher taxes,
and I hate to see
any segment of the
population pay more
than their fair
share. In Detroit,
Michigan and
surrounding areas,
unjust taxation is
the norm. In
Detroit, a homeowner
pays nearly twice as
much in property
taxes than a
homeowner in nearby
Warren, Michigan
pays for a
comparable property.
Likewise, homeowners
who have recently
bought into an area
commonly pay
substantially more
in taxes than their
neighbors who have
lived there longer.
Homeowners think
up all sorts of
cunning strategies
to reduce their
property taxes. In
Boca Raton, Florida,
a buyer devised a
clever scheme in
which he bought a
$15 million home for
$7.5 million in cash
and mortgage and
$7.5 million in
non-cash payment and
reported the
purchase price to
the assessor at $7.5
million. (These
numbers have been
adjusted to protect
the innocent.)
Some homeowners
attempt to trim
their taxes by
filing for multiple
homestead
exemptions. For
example, a husband
and wife may file
two separate
homestead exemptions
to double their
savings … an
obviously illegal
tax-saving strategy.
Homeowners may
even choose to trade
houses and knock an
equivalent amount
off the sales price
for each house. For
example, if one
owner has a $200,000
house and the other
has a $400,000
house, they may
trade houses and
knock $100,000 off
the official sales
price of each house
to lower the taxes
on both properties.
As a real estate
professional, I'm
concerned about the
effects that these
and similar schemes
have on the industry
and the tax base,
not to mention the
effect they have on
my commissions.
Scofflaw schemes
to lower tax
assessments on
houses undermine our
ability to set home
prices accurately
and fairly, place
homeowners at risk
of prosecution for
fraud, and increase
the tax burden on
law-abiding tax
payers. As real
estate
professionals, we
are responsible for
discouraging these
practices to ensure
a fair and level
playing field. We
need to avoid
getting involved in
these schemes
ourselves,
discourage our
clients from
participating, and
report fraudulent
activity when we
witness it. I really
like this approach!
So what's an
unjustly overtaxed
property owner to
do? Recommend the
following legal
solutions to your
clients:
- File your
homestead
exemption with
the county and
state.
- Appeal your
assessment if
you believe it
is too high. You
can find several
excellent
articles on the
Web with
complete
instructions.
- File a
petition with
the governor and
the secretary of
state and any
local taxing
authorities to
rewrite the tax
code.
If property taxes
in your area are in
the nosebleed
section, consider
spearheading a
campaign to
establish fair
assessments and
rates. By
demonstrating your
awareness of the
issue and proving
your commitment to
the neighborhoods in
which you do
business, you
perform a valuable
service to your
community and give
yourself a
competitive edge in
your housing market.
