More Loudoun Tax Math

Yesterday's post about the implications of the $1.14 tax rate underestimated its impact for certain homeowners. Here in Loudoun, there are definitely homeowners for whom this increase will lead to a net increase in all taxes paid, even when including the Federal refund in the calculations. However, it is interesting to identify which homes will see this kind of tax increase.

In order for the rate adjustment from $0.96 to $1.14 to actually yield a net increase in the total amount of taxes paid, the following must be true:

The 18.75% increase in the rate must yield a greater than $1200 increase in property taxes charged, since Loudoun's property taxpayers are largely families, and therefore eligible for the $1200 (or more) stimulus refund from the Federal government.

We can reverse engineer the home value necessary for that kind of property tax increase. A $1200 increase in property taxes from 2007 to 2008 implies a 2007 tax of $6,400 ($1200 is 18.75% of $6,400). A 2007 tax of $6,400 implies a 2007 home assessment of $666,667 ($6,400 in taxes divided by the $0.96 2007 tax rate, then multiplied by $100 since the taxes are per $100 of assessed value, equals $666,667).

But wait, one might say, home prices are down, assessments are down, just because a house was valued over $650,000 in 2007 does not mean it's worth that much in 2008. And on the face of it, this would be a very good argument. Unfortunately, the evidence and facts do not bear it out. The only kinds of homes not suffering a remarkable decline in value in Loudoun are single family homes on over an acre of land, the ones, not incidentally, generally worth more than $600,000.

Class 200 to 299 – Single Family Residential: This category includes properties that are over an acre and less than 20 acres in size. They generally are served by private water supplies and waste systems. These properties are generally found in the more rural parts of the County. The 2007 assessments for this class totaled $8,641,200,601 based on 16,435 parcels. The 2008 assessments for this category total $8,899,030,515 based on 17,109 parcels. This represents an increase in value of 2.98% for this category and parcel count growth of 4.1%. Construction and growth accounted for $203,819,900 of the total assessments. The equalized class 200 to 299 assessments from 2007 to 2008 increased by 0.63%. This class represents 15.3% of the taxable properties in Loudoun County. The average equalized assessed value for 2007 is $534,087. [emphasis mine -P13] - Loudoun County 2008 Assessment Summary

Properties larger than one acre ("Rural Residential") also saw an increase in value (anywhere from 10% - 25%), and represent approximately 2.3% of the taxable properties in Loudoun.

So, the only properties who will see a net increase in their total tax burden (i.e., the County tax increase raises their tax burden by more than $1200) are properties whose values have increased by 2.98% or more between 2007 and 2008. These properties had an average value of $534,087 in 2007. That means that an increase of 2.98% represents an added $15,916 in the value of these houses. So the owed net tax increase is less than 10% of the year-to-year increased value of these homes! Furthermore, these properties are only 17.6% of all taxable properties in the County. So, a tax "increase" is carried by less than 20% of taxpayers, and is only carried by taxpayers who have seen the value of their houses increase by ten times (or more) the cost of the tax increase from 2007 to 2008.

So, at the end of the day, the taxpayers who will actually pay more taxes are those who actually made money in real estate in a down market. These property owners will come out ahead on their real estate investments in spite of the most difficult housing crisis in modern memory and marginally higher taxes.

Just something to keep in mind as these discussions continue.