When taxes come in the way of your asset cash flow, you have to take a good look on how you can improve it. Taxes are needed by any community, state or government, but you should know your rights as a property taxpayer. In Texas, there are numerous ways on how you can leverage your property’s income stream by eliminating unnecessary amounts from your taxes.
Challenging the system is acknowledging your rights as a responsible tax-paying citizen. Start off by familiarizing yourself with these 7 facts about Texas property tax.
1. There’s no property state tax
If you’re living in Texas, know that there’s no such thing as property state tax. The Texas Constitution absolves itself from setting tax rates, collecting taxes or fixing disputes, as they have given each local government the power to do so.
So next time you’re asked to pay for a property state tax, know that it’s most likely a fraud. The state doesn’t have anything to do with property taxes or any of the sort.
2. Rates are set according to tax units budget
Taxes are just one among the sources of budget for different local taxing units. Texas property taxes go out to schools, counties, cities and junior colleges and other special districts to fund their needs and other public services.
That’s why these local tax units are the ones who set the property tax rates. This is done by the chief appraiser in each of the appraisal districts, with the help from the appraisal review board.
Aside from property taxes, these units also receive funds from local sales taxes, in addition to local and state funds.
3. Property tax is based on market value
To facilitate equal and just taxation, property taxes are set based on its current market value. The current market value of the property can be defined as the amount the buyer and seller have agreed upon for the property.
Although the Texas Constitution has made it clear that there are some exceptions to this rule. Properties with crops and livestock can have lower tax rates because of their ‘productivity values’.
This is done to be fair enough for land and property owners who sell assets based on the value a certain property produces.
4. Taxation is equal and uniform
The law mandates that every property tax must be equal and uniform in all local governments. That is, property taxpayers must only pay for their property’s fair share, no more, no less.
There are no rules that suggest why you should be paying less or more, unless the stated exemptions of productivity values. If you’ve in any way encountered such mishap, know that you can actually do something about that.
5. You can issue tax appeals
Yes, you can! As a responsible taxpayer, you have the right to question appraisals if you think you’re paying more than you should. Properties and assets are great sources of income, and the more you know what you can do to lower your tax expenses, the better it is for your business.
Even the state protects this right with a law prescribing the best procedure to properly protest for your property’s assessed value. Tax appeal is important for both the taxpayer and the government so each can be fairly given the right value they should get.
6. Depreciating commercial properties lowers tax
If you own a commercial property, know that you can depreciate its taxation value by lowering federal income taxes. This can be done through this wonderful IRS-define approach called cost segregation.
Cost segregation is a legal and effective way to depreciate commercial properties built after 1986. Usually, you can apply for depreciation and wait for 39 years for commercial properties and 27.5 years for apartments, for it to take effect.
But with cost segregation, after assets are reviewed, it can be depreciated in a matter of 5, 7 or 15 years. This method can be done during any part of property acquisition-- construction, purchase or even if you own it for several years already.
You can just imagine all that you can save for your commercial property’s federal income taxes!
7. The IRS supports Cost Segregation
Cost segregation is a tax appeal done to lower commercial property taxes for the benefit of your business. After all, your hardwork and dedication to your business must always pay off.
However, the Internal Revenue Service or IRS has set up clear guidelines that must be strictly followed. If your procedure in appealing for Cost Segregation is done correctly, you can reap the fruits of your labor without paying extra tax charges.
As for the IRS direct statement, “Accordingly, a taxpayer could request “automatic consent” for a change in accounting method through the filing of a Form 3115 with a timely filed return (including extensions), and deduct the “catch-up” depreciation in the year of change with a 481(a) adjustment.”
Taxes help the economy prosper, but it shouldn’t be a burden to those who work hard to build their own wealth. With proper knowledge on how Texas property taxes work, and how it’s assessed, you’ll know that even a steady system can be challenged from time to time.
