Over the past few weeks I have been explaining to many first time home buyers that if they buy a home before July 1, 2009 they can take advantage of a $7,500 tax credit.

Some, though, have been less than enthused because the full $7,500 tax credit has to be repaid over 15 years.  Yes, that's right --- even though you will pay $7,500 less in taxes for the tax year in which you make your first home purchase, you do have to repay these tax savings in years three through seventeen.

I thought I'd take a look at the value of what is essentially an interest free $7,500 loan.  For this analysis, I am examining the aggregate savings from not paying interest on the $7,500, using a current interest rate of 6%.


As you can see --- over the course of the 17 years, you save a total of $4,050.  Thus --- even though you are paying back the $7,500 tax credit, it is still at a significant ($4,050) savings.

Currently, property owners in the City of Harrisonburg are taxed at a rate of $0.59 per $100 of assessed value. In other words, a $225,000 home is a tax liability of $1,328 per year.

Thus, since real estate values almost always increase in Virginia, unless the City lowers its tax rate, taxes will also almost always increase!

And so, this year (2008), the City of Harrisonburg finds itself going through the process of notifying Harrisonburg property owners that they are proposing a real property tax increase. No, they aren't increasing the tax rate ($0.59), but the effective taxes will increase because of increased property values.

Here are the details of the changes in the City:

• Property Assessments increased by 6.45% between 2007 and 2008.
• To keep the sum of the tax liability for all property owners the same as last year, the City would have to lower the tax rate from $0.59 per $100 of assessed value to $0.5543 per $100 of assessed value.
  
• Thus, the effective rate increase is the difference of these two tax rates, an increase of $0.0357 per $100 of assessed value, which is a 6.4% tax increase.
  

Certainly, some property owners will see more (or less) of an increase in their tax liability -- but as a whole, by keeping the tax rate at $0.59, the City is increasing taxes by 6.4%.

Do you have questions or opinions about this tax increase? You are welcome to voice them here on my blog, in the comment section. Additionally, a public hearing will take place on May 13, 2008 at 7:00 PM in the Harrisonburg Council Chambers located at 409 South Main Street, Harrisonburg, Virginia.

The current tax rate for real estate in Rockingham County is $0.58 per $100 of assessed value. 
($200k home / 100 * .58 = $1,160 annually). 

The proposed budget for the 2008-2009 fiscal year would increase property tax rates for the 2008 calendar year by $0.02 to $0.60 per $100 of assessed value. 
($200k home / 100 * .60 = $1,200 annually). 

To see for yourself, scroll through the budget below until you get to the bottom section where I have circled the tax rates in red.  For a more detailed view, click on the budget to download a larger image.

To inspect the budget, visit the County Administrator's Office at 20 East Gay Street in Harrisonburg.

To provide feedback to the Board of Supervisors, attend the public hearing on April 9, 2008 at 6:00 p.m. at Turner Ashby High School, in Bridgewater.

The assessed value of a property is the value assigned to the property by the local assessor's office, for the purpose of determining how much you will pay in taxes.  Harrisonburg has a great "Understanding Assessments" guide on the Commissioner of the Revenue section of their web site.

How to determine the assessed value of a property:

For Harrisonburg, visit the new Real Estate Information System to view assessed values for properties, and lots of other property information.

For Rockingham County, visit their GIS web site, where you can search for a property, and obtain its assessed value.

Additionally, if you have trouble with either of these systems, feel free to e-mail me (scott@cbfunkhouser.com) --- I look up assessed values quite frequently, through both of the systems above, and through the MLS.  I'd be happy to look up a property for you and e-mail you back with the assessed value. 

Real World Assessments

Let's take a look at a few real world assessments compared to recent sale prices to see how they compare, starting with the three real estate closings from the past few weeks in our MLS for Harrisonburg . . .

1064 Meadowlark Drive (closed 1/2/2008) Sale Price = $155,000 Assessed Value = $149,500 (96.5%) 1159 Westmoreland Drive (closed 12/27/2007) Sale Price = $265,000 Assessed Value = $204,300 (77.1%) 80 Maplehurst Avenue (closed 12/27/2007) Sale Price = $312,500 Assessed Value = $229,600 (73.5%)

1090 Oakdale Court (closed 1/3/2008) Sale Price = $167,000 Assessed Value = $144,000 (86.2%) 4765 Lawyer Road (closed 12/28/2007) Sale Price = $270,000 Assessed Value = $180,900 (67.0%) 126 Wilson Way, Massanutten (closed 12/28/2007) Sales Price = $325,000 Assessed Value = $299,000 (92.0%)

It becomes clear that there is not a magical percentage that can be used to determine the market value of your home based on assessed values. 

Finally, here's one example of a house (that I am marketing) that is for sale at a price below the appraised value:

6210 Dotts Lane, Penn Laird (click here for details)
Asking Price = $319,000
Assessed Value = $333,200
With amazing views, a large lot, a private neighborhood, schools in close proximity, superior construction quality, and a price below appraised value, it is a great opportunity!

Capital gains are gains on assets that had been held for over one year before being sold. Roughly speaking, if you purchased your home for $200,000 and are selling it for $250,000 you have netted $50,000 of capital gains. This profit is taxable, with one significant exclusion. If, in the 5-year period ending on the date of the sale, you have:
   - Owned the home for at least 2 years (the ownership test), AND
   - Lived in the home as your main home for at least 2 years (the use test).
then you will generally only be taxed if your gain is more than $250,000 ($500,000 if married filing a joint return). Yes, you really are exempt from any and all taxes on this profit.

If you are selling your home less than two years after you bought it, or within two years of selling another home and claiming a capital gains exemption, you may still be able to reduce the amount of gain upon which you will be taxed.  This is possible if you sold the home because of:
  - a change in place of employment
  - health
  - unforseen circumstances

Per the IRS, "For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. It also includes the start or continuation of self-employment."  The only other stipulation on the change in place of employment is that the move is greater than 50 miles.

The IRS has volumes of information on this topic located here --- where you'll even find the worksheet and calculations to use to determine the amount of your potential tax liability.