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If I am reading this idea correctly, this would create some perverse incentives to hold onto property that has appreciated in value, particularly the longer the
by douche 11y ago
If I am reading this idea correctly, this would create some perverse incentives to hold onto property that has appreciated in value, particularly the longer the property has been held. If the "missing" tax amount gets tacked onto the lien every year, but only comes due when the property is sold, why would you ever sell? You'd keep locked into your pre-existing low tax rates, and lease out the property for income, or use it as an asset, or whatever, but you wouldn't sell it. You would go through elaborate legal gyrations to find loopholes that would allow you to pass on the property to your descendants without it being a sale, so that the lump-sum back-taxes collection isn't triggered. So the housing supply largely freezes, and prices go up higher.
- ScottBurson 11y agoLet's look at some numbers. If you own a property for 10 years, during which time it doubles in value -- let's say it does that at the steady rate of 7.2% per year -- and your property tax rate is 1%, and the increase in your payments is capped at 2% per year, the amount of unpaid tax due when you sell the property is about 3% of your gain on the property. If you held it for 20 years, during which it continued to appreciate at the same rate, the unpaid tax due would be a little under 6% of your gain. If you held it for 30 years, during which it doubled in value again, the unpaid tax due would be about 8% of your gain. Consider that the standard commission paid to the listing agent when you sell a property is 6% of the sale price, and you'll see that these amounts are not significant disincentives to selling.