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HOW TO EASILY CHECK TAX BILL

Last week I discussed the basics of how tax bills are calculated. As part of your due diligence before buying a home, it is a good idea to have a look at the tax bill for that new home so you don’t get any surprises later. I described last week how most lenders and escrow officers use 1.25% to estimate your tax bill, but some homes in East County are taxed at much higher rates.

Thankfully Contra Costa County has their tax bills online so you can check them very easily. Here is the link – https://taxcolp.co.contra-costa.ca.us/taxpaymentrev2/summary/

Once you are there, the best way to search is by the Assessor’s Parcel Number (APN). If you don’t have that, you can search by street address. However, it is a little picky as far as how you enter the street address as it tries to match it EXACTLY to what is on the tax bill. Let’s say the address you want to check is 123 Main Street but it is listed on the tax bill as “123 Main St.” If you enter “123 Main” it won’t pull it up, and “123 Main Street” won’t work, either. In this case, the only way for it to pull up is if you enter “123 Main St.”

Once it does locate the property, the first screen you come to will be a list of the current tax year installments and their status. At the bottom will be the assessed value of the property listed as “gross.” To see the assessments, under “Payment Status,” look for the words in blue, “View Bill.” Click on that and it will pull up the actual tax bill, complete with a breakdown of the Ad Valorem Taxes and Assessments and Special Taxes and Assessments. Next week I’ll tell you how to look at the current tax bill and then estimate very closely what your tax bill would be in the event you buy this property.

PROPERTY TAX BASICS

When I first started in real estate, some of my clients were surprised when their first payment was much higher than what they were quoted by their lender. I would find that their principal and interest were exactly what the lender had quoted them, but their monthly tax impound was much higher. Usually when most people first sit down with a lender, they haven’t picked a home out yet, so the lender HAS to use an estimate since the property taxes aren’t known yet. Many lenders and title companies use 1.25% as a rule of thumb to approximate your tax bill when they quote you a payment on your new home and/or to calculate your impound accounts. However, property taxes can vary greatly from town to town, neighborhood to neighborhood, and even within neighborhoods. I quickly learned how tax bills were calculated to try to provide more accurate estimates to my clients and avoid these nasty surprises.

Your property tax bill is broken into several different sections. First is the Countywide 1% Tax, which is 1% of your Assessed Value (which is usually initially set at the sales price when a property changes hands). Then you add in school bonds, city bonds and others. That is the total of your Ad Valorem Taxes. Then you add in Special Taxes and Assessments, which can be park assessments, Mello-Roos, etc. When you add all these amounts up, that is your total tax bill due for the year. If you divide that by your Assessed Value, you will get your effective tax rate, which is often 1.3%-1.5% around here, but can climb MUCH higher in areas with large special assessments. So if you bought a home with a 1.5% Tax Rate, and your lender had estimated your payment based on 1.25%, it could mean an extra $100-200+ every month. Next week I’ll tell you how to estimate the tax bill on a house your considering buying.

DEDUCT INTEREST WHEN NOT ON TITLE?

I’m seeing more situations where a parent will step in to buy a home for their adult child since the parent has better credit, even though the child will be living in the home and making all the payments. There is typically a question about whether the child can write off the interest on the loan, and the answer is “probably.”

Regulation 1.163-1(b) of the IRS reads: “Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.”

The IRS has challenged this type of situation before – sometimes they allow the deduction, but other times they don’t. They want to see that the party claiming the deduction has all “the benefits and burdens of ownership…”

Here are the factors in the cases allowed in the past that seemed to sway the IRS towards approval: 1. The child must live in the property. Their driver’s license, voter registration and utility bills should be in their name and should list the property address. 2.
Parent and child should sign a written agreement saying that the child is fully obligated to make mortgage payments, that parent can evict in the event of default, and that parent recognizes that the child has an “equitable interest” in the property. 3. Child should be responsible for all maintenance and upkeep of the property. 4. Parent and child should sign a Quit Claim Deed, conveying the property to the child. This will not be recorded, but shows your intent that the child really “owns” the property.

Please see a tax expert and/or attorney for specifics to your situation.

THE REVIEW APPRAISAL

Sometimes a home has sold for way over the last comparable sale, and the appraiser has difficulty justifying that price. However, they are able to do it by adding in lots of compensating factors like upgrades, location, market trends, etc. The unsettling part is that you aren’t out of the woods yet. You might still have problems with a “review appraisal.”

The appraisal done on your home is referred to as a “field appraisal” done by an appraiser who comes out to your home. Before some lenders will release the buyer’s loan funds to buy the home, they will have someone else do a “review appraisal” to check the field appraiser’s work. This will take place back at the lender or underwriter’s office a few days before close of escrow. They are just looking at the appraisal on paper to make sure it was done according to generally accepted appraisal methods.

For example, if the review appraiser sees that the last three closed sales of your floor plan were at $400,000, but your home is selling for $500,000 because you have a pool, they will probably throw the appraisal out. They don’t need to see your home in person to know that a pool doesn’t add $100,000 to the value of your home. It doesn’t matter to them what kind of pool you have.

If this happens, this can kill the whole transaction just a few days before close of escrow. The word “inconvenient” doesn’t BEGIN to describe this situation when it happens. You’ve got a deposit down on a new home, moving trucks lined up, etc. This is why I tell my clients, “The deal isn’t done until the money hits your bank account.”

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