I am evaluating to purchase a property south of DFW wherein the county Tax records show that the taxes are nearly $4500 with assessed value of $158000. (Market price may be even higher). With expected rent in the range of 1350 - 1450, it looks like complete 3 months rent is going to taxes. Is this standard in the region? Appreciate your pointers and is there any ways to reduce taxes if at all possible?
@Naveen Desai Yes, the property taxes are typically 2%-3% in the DFW area. You can most certainly protest the value of the property with the County appraisal district and a lot of investors win. We typically see about $1,000 shaved off of our taxes owed on our 9 properties each year and that is with us splitting the savings with the company that protests for us.
Pretty standard, forget about the 1% rule here. Assume 3% tax rate in your calculations for Texas. It is how the state makes up for not having an income tax. And you can bet that whatever you end up paying for the property will be what the new valuation will be the following year unless its lower than the current value in which case you need to protest. I protest every year but was denied on both properties in Dallas county I have. They know value is going up so their gunna take as much as they can.
@Naveen Desai Why are you looking to invest in Texas when you live in CA? That is going to be your biggest issue. Not that investing out of state is wrong but that it needs to be done with thorough research. I am guessing you haven't talked with a tax professional about this yet. I currently do not hold my CPA and I am not giving you official tax advice but..
You live in the state with THE HIGHEST state income tax but want to buy in a state with no income tax that gets their tax money through property tax (the 4th highest in property tax). So in short you are going to be paying very high property tax in Texas and then turn around and pay even more in CA state tax. I know you will be able to use depreciation over the next 27.5 years but after that, if you are holding this for a long play, you will be paying a ton in taxes.
@Lucy Hilton , Thanks for your reply. Would like to discuss. Let me know a good time. Thanks.
@Ryan Blake , Good point about prop tax and tax in my domicile state ( for now). Well I am not new to out of state investing. I have rentals in 6 diff states. Am in CA now due to my primary job. I hear your argument. Where would you invest if in my situation? Would like to understand, how you will look at opportunities. If interested, I could discuss offline on how I see it.
@Naveen Desai I am not sure where I would invest if I lived in CA. I have not had to be in that situation. I could go with the crowd these days and tell you the Midwest is where a lot of people are investing out of state. I haven't done research on it but I do know about the crazy tax rates in CA and the benefit of living in a state without income tax. I moved from CA to TX over 10 years ago to start my professional career and escape the problem of high state income tax.
I hope that someone else from CA will have more information on what they do for tax shelter when investing out of state.
Sorry I don't have much more information than that. I just was wanting to caution you of putting yourself into a highly taxed situation. There could still be a lot of money to be made and if the deal is there and you will still make a good return after taxes, then go ahead and do it. Especially if you are only in CA short-term because you may see very little income tax liability when you factor in depreciation. If you plan to be in another state when your depreciation amortization is expired or when you plan to sell off with cap gains (not using 1031) then it would be less of an issue.
@Naveen Desai Messaged you with my contact information. Thanks.