Saturday, February 03, 2007

The Wacky World of DC Property Taxes

Mari of In Shaw did a post about property taxes a few days ago that got me going. Rather than clutter up her blog with long rant of a comment, I’m going to do a post of my own on a subject that drives me nuts.

Here’s the thing: DC tax assessments are totally capricious and make a complete mockery of the principle of equal taxation based on actual property value. Within any given block in this city, you can find at least a dozen examples of absurd valuations, and the city has in effect created two classes of tax payers: those who bought their property before the price bomb went off (roughly 2003) and those who bought later. If you’re in the former category, you’re sitting in a tub of butter. If you’re in the latter group, you’re paying for the butter.

This situation was accomplished by creating a “taxable assessment” value a few years back that can rise no more than 10% per year. So even though the tax appraisal may now reflect pretty much the real value of the property (not necessarily the case, BTW), the taxable assessment—the number that your taxes are actually based on—could well be only a small fraction of that amount.

Before about 2004, DC tax appraisals were actually well below the true market values even for those pre-boom days. The District has since tried to make the valuations more closely reflect the market values, but that doesn’t matter if you bought several years ago because your taxable assessment will remain absurdly low forever. This is fiscal insanity and, probably wouldn’t hold up in court, if properly challenged. But it’s political genius, because it means most people have a big vested interest in keeping this grossly unfair system going.

Let me take one block in Shaw (guess which one) for few examples. (No names or addresses, and the amounts have been fudged slightly to avoid ratting anyone out, but I can back all of this up with publicly available data.)

  • A’s house was purchased prior to 2003 for a bit over $400K. The total valuation for 2007 is something over $500K, but the “taxable assessment” is less than $90K. That means A’s tax bill (at $0.88/100) will be a bit over $700.
  • Just around the corner in the same block is a condo B bought in 2005 for something over $500K. The 2007 valuation for this property is almost exactly the same as for A's house, but the “taxable assessment” is nearly $500K. That means that B will be paying over $4,000 in taxes.

In case you’re wondering, none of the parties involved is elderly or poor, and both are availing themselves of the homestead deduction. But taxpayer B is paying about 6 times as much in taxes as taxpayer A for properties of equal value.

But, you might ask, wouldn’t the taxes equalize eventually? No, my child, they will not—unless there is a catastrophic fall in real estate values that will drop all market values to the level of the grandfathered assessment of taxpayer A. Remember the assessment increase is limited to 10% per year. Therefore, happy undeserving A’s taxable assessment can only rise by $9,000, while wretched meritorious B’s can increase by more than $50,000. This means the gap between A and B will only get larger as time goes on. And no, this is not an exceptional case; there are many similar examples on this block alone.

Mari brought up the issue of land valuation. The total valuation of a property is the sum of two components: the land and “improvements”. Here’s Mari’s definition: “Land = dirt stuff stands on. Improvements = stuff standing on dirt. It could be a designed palace or a crack-shack.” (Can’t do better than that.) Logically, land in one lot should be worth about the same as that of the lot next door. Not in DC. In our sample block, your friendly tax assessor has valued land anywhere from $23 per square foot to $234 per square foot. That’s right—a tenfold difference. In three adjacent lots, the valuations range from (a) $82/sf [a vacant lot] to (b) $23/sf [a derelict shell] to (c) $174/sf [a renovated condo]. This is crazy. The value of the land should be identical—remember, what’s on the land is appraised separately. The only possible explanations are incompetence or corruption.

Then there are the other anomalies, like the 4-unit new apartment building whose total taxable appraisal is less than that of our 2 bedroom condo. And apparent outright fraud, like the house that has been unoccupied for at least 2 years but which is still receiving the “homestead deduction.” And the building bought last year for almost a million dollars, whose appraisal and taxable assessment were set at roughly half that amount. I could go on.

Before someone goes all bleeding-heart on me, let me stipulate that I believe that retired folks and people of limited financial means should get a break—even a big one—on their property taxes. But there are other widely-used ways for dealing with those issues. I don’t really even think the tax I’m paying is particularly out of line with what it ought to be. What makes me angry is the inequity of it.

I know of no other jurisdiction in the region that operates this way—i.e., basically imposing a punitive tax for buying property and moving into the District. While urban hipsters may love to look down on suburbanites, if you buy a property in DC, you’re the one being played for the rube, sugar.

Oh, and newcomers…the next time some neighborhood old timer tells you that your opinion doesn’t count because you haven’t been here long enough, feel free to remind them that you, not they, are paying for the wonderful public services that the District of Columbia provides.

There’s more to say on the subject, but I feel my blood pressure rising and I’ve probably already pissed off enough people for one day.

7 Comments:

At 2/03/2007 4:20 PM, Blogger IMGoph said...

daddy five-oh, thanks for this post. i'm just now starting a search for a house, and while i've heard lots of good things about tax breaks and what-not for people of lesser means (of which i am DEFINITELY one), i haven't seen this analyzed anywhere else. i'm going to talk to the realtor about it on tuesday. god, why couldn't i have had a little bit of money and sense to buy something back in 2000 when i was an intern here.....

 
At 2/03/2007 8:39 PM, Blogger si said...

Its a crazy system for sure. the handful of assessors have a very large complicated handbook which I dont see how they have time to use. It seems like there are only 5 of them for the whole city.

The system is inequitable. I am actually in both postions, one house i pay thousands in tax, the other, hundreds. I sent the homestead cancellation in a looong time ago and await being smacked with a big bill. they cant even collect their money right.

another issue is improper exemptions. as i continue with the vacant property project I contacted OTR about a vacant house on NJ. It has been empty (save for crackheads) for 30 yrs yet the owner pays NO taxes. clean city fines from 14 yrs ago remain unpaid. the assessor was surprised :) and sent it to a superior, stay tuned.

excellent observations about the land valuations. I will be sure to incorporate.

but let us rejoice! our property tax rates are much lower than va, md, pa, nj....could be much worse.

 
At 2/04/2007 6:55 AM, Anonymous Harold Knolls said...

Become an incorporated church like several around here who have targeted elederly and vulnerable property owners and have built a nice modest portfolio by promising a passport to the next level. Churches pay not taxes, water or electricity. The taxes on 9th street are NOT low.

 
At 2/04/2007 7:14 PM, Blogger Mari said...

Old people get a Senior Citizen deduction or something, don't worry too much about grandma.

 
At 2/04/2007 7:43 PM, Anonymous Ray said...

I overlook twice as many vacant properties than inhabited ones. Next door is an inhabited rat trap piled with trash and debris (that goes back to the 1940s). I will no doubt depart this life without conditions ever improving in my proximity, especially with Shiloh as a neighbor. So I screw in 3/8-inch plexiglass plates inside my 100-year-old window frames every winter to keep out the drafts and leave the bullet hole in my plate glass front door to remind the assessor and ghettofiers to leave me alone when they come to check out my unadorned exterior in this historic slum. My assessments have gone up exponentially -- but, Dave is right, my taxes are low compared to those who've acquired newly renovated "luxury" properties of recent vintage. My heartfelt thanks go out to all those hipsters who pay the big bucks to the city for a kewl urb experience and faab digs, who will come to realize after a couple of years that DC is truly Third World, then move on. In the meantime, I'll enjoy biking to work, hanging my laundry on the bannister and on racks (no dryer), produce one can of trash a month, schvitz in the summer heat without air conditioning, paint over the grafitti myself, pick up the trash twice a day, sweep the streets once a week, buy hot Catania bread at a buck a loaf, and live a modest life accepting the things I can't otherwise change in this dysfunctional town.

 
At 2/13/2007 11:29 AM, Anonymous ohla said...

i don't really have a problem with the fact that taxes are capped by 10 percent meaning that those who have lived in the neighborhood longer get a break on taxes rising along with property values. had my house cost $500k i wouldn't have been able to afford it, and i certainly can't afford the taxes on that price.

what bother me is that the assessments for near identical houses differ so dramatically. when i bought my house in bloomingdale it was assesed at $250k (more than i paid for it) and yet, the identical house across the street that had been fully renovated had an assessment of just $60k. four story homes at the other end of the block were assessed at $190k, even though they were twice the size of my home.

i successfully appealed my assessment that year, giving me a lower basis on which to add the 10 percent per year. but, though somewhat better, the assessments are still generally dramatically out of whack with the size, condition and location of the home having very little bearing on what the DC tax office deem it is worth. if the nominal "assessment" figures the DC govt comes up with had any relationship to the value of the homes on my street i would have no problem with the fact that i am paying $1500 more than a neighbor who has lived there for 30 years.

 
At 6/13/2009 9:05 AM, Anonymous Anonymous said...

This is a great post. I used it to understand the nuttiness around my own house (13th and U St).

It's interesting to understand what's happening in the 2010 proposed assessment (with property values dropping) in light of this info. Every home purchased in the past few years dropped in both assessed value and taxable value, by roughly the same percentage. Given your analysis, they COULD have dropped the assessed value and raised the taxable value to try to match them up. But they didn't.

At the same time, for every home purchased a while ago (those with assessed in the $500k+ range and taxable in the $100k range) saw their assessed value drop by x% and THEIR TAXABLE RISE BY 10%.

This is true on 100% of the homes on my block. To me this says the system is trying to infuse rationality - people who paid through the nose are getting a break while those who've been living high the past few years are not getting to take advantage of the dropping home values.

 

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