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.

Published: September 5, 2006

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Ralph R. Roberts, CRS, GRI is an award-winning and internationally recognized real estate agent, author, coach, and speaker. Throughout his career, Ralph has proven his commitment to helping other real estate and sales professionals build upon their past and present success, grow and expand their businesses, and provide a rich and rewarding future for themselves, their customers, their employees, and their families. As president and CEO of Ralph Roberts Realty, Ralph has personally helped thousands of consumers realize their dream of homeownership. While selling over 10,000 homes (and buying and selling over 3,000 investment properties) throughout his 30-year career, Ralph has made the time to mentor and coach hundreds of professionals in real estate, sales, and a host of other fields. Ralph is a recognized authority on Real Estate and Mortgage Fraud; Residential Real Estate; Personal Salesmanship; Sales Force and Office Management, Motivation, Design, and Team Building; and Foreclosure Self-Defense and Loan Modification, fields in which he has demonstrated his commitment to preserving the American Dream of Homeownership. Ralph's numerous websites, blogs, seminars, and speaking engagements engage, entertain, and educate both consumers and professionals. Ralph is also an accomplished author with several successful titles to his credit, including: Power Teams: The Complete Guide to Building and Managing a Winning Real Estate Agent Team Financing Real Estate Investments For Dummies (John Wiley & Sons) Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (John Wiley & Sons) Foreclosure Self-Defense For Dummies (John Wiley & Sons) Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan) Foreclosure Investing For Dummies (John Wiley & Sons) Foreclosure Myths: 77 Secrets to Saving Thousands on Distressed Properties (John Wiley & Sons) Advanced Selling For Dummies (John Wiley & Sons) Flipping Houses For Dummies 52 Weeks of Sales Success (John Wiley & Sons) Walk Like a Giant, Sell Like a Madman (John Wiley & Sons) Cross-Cultural Selling For Dummies (John Wiley & Sons) To learn more about Ralph, visit AboutRalph.com, check out his daily insights on real estate and mortgage fraud prevention at FlippingFrenzy.com, or visit his latest blog dedicated to helping distressed homeowners fight foreclosure, KeepMyHouse.com. You can reach Ralph at or by calling (586) 751-0000.