Let's Stabilize Local Taxes

Has anyone noticed how many houses are coming on the market?  Just look at realtor.com to get an idea. I know it is the spring market but this is ridiculous.  Our elected officials,to my mind, must slow down on spending. There are thoughts of a new library. Ridiculous! Our 2 Maplewood libraries are wonderful. I'm there weekly. It is a library,not a conference center.  I'm seeing another realtor sign just come up on my block and also received a note from a neighbor who wants to sell on her own. Now as I'm looking out my back window  I see a bunch of realtors viewing another house.. I know there are many reasons for moving but ,speaking to various people, taxes are primary. Let's stop this spending...


In reality neither town is truly out of control in regard to spending.  The vast majority of our budgets go into payroll and associated expenses.  You want librarians in your library, right?  And snow removal, policemen, firemen?  Where is the spending you want to cut?  And home sales are not necessarily because of taxes.  If a home doubles in value it means someone is willing to pay that, and someone else may want to cash out.


FilmCarp said:
In reality neither town is truly out of control in regard to spending.  The vast majority of our budgets go into payroll and associated expenses.  You want librarians in your library, right?  And snow removal, policemen, firemen?  Where is the spending you want to cut?  And home sales are not necessarily because of taxes.  If a home doubles in value it means someone is willing to pay that, and someone else may want to cash out.

 And over half of our tax bills in both towns are for the schools, I believe. 


You realize that our property taxes are not related to the hot real estate market.


and 15% goes to Essex County.  i.e.  down the proverbial rathole.


If the taxes were really too high, nobody would want to purchase the houses that do go on the market.  From what I see in my travels around town, houses are on the market for a relatively short period of time. School funding via real property taxes and lack of a commercial tax base are what is driving the high residential property taxes.  Sad reality is that as taxes go up, some residents are being priced out of their home.  I'm not sure what we can do to resolve this problem short of major policy changes in Trenton.


and there are a lot of people who stay because they've paid off their mortgages, and the property taxes are less costly than moving out and paying rent somewhere.


ml1 said:
and there are a lot of people who stay because they've paid off their mortgages, and the property taxes are less costly than moving out and paying rent somewhere.

 That's an odd one.  If I had a 600k house, paid off, and no kids in school I think I'd sell.  The 600k plus 2k per month in saved taxes would pay a lot of rent for a long time.


FilmCarp said:
 That's an odd one.  If I had a 600k house, paid off, and no kids in school I think I'd sell.  The 600k plus 2k per month in saved taxes would pay a lot of rent for a long time.

 and if you rented, you'd be paying tax on the gain on your 600K home.  So kind of a wash, unless a person is planning to live a long, long, time.

A lot of people stay because they don't want to leave their friends and the lives they've built here.  If they can afford it (and if the mortgage is paid, usually they can), they stay.


ml1 said:

 and if you rented, you'd be paying tax on the gain on your 600K home.

Doubtful.  If the home has been your primary residence for two of the five years prior to sale, you can exclude $250k in gains per taxpayer (i.e., $500k for a couple).  That'll cover the vast majority, if not all, of the gain on the sale of the home. 


Steve said:
Doubtful.  If the home has been your primary residence for two of the five years prior to sale, you can exclude $250k in gains per taxpayer (i.e., $500k for a couple).  That'll cover the vast majority, if not all, of the gain on the sale of the home. 

 good to know grin


Steve said:


ml1 said: and if you rented, you'd be paying tax on the gain on your 600K home.
Doubtful.  If the home has been your primary residence for two of the five years prior to sale, you can exclude $250k in gains per taxpayer (i.e., $500k for a couple).  That'll cover the vast majority, if not all, of the gain on the sale of the home. 

 A lot of the long time home owners in our town are widows/widowers/divorcees thus an exclusion of only 250K.


A lot of people are moving because of the SALT cap on their federal taxes.  


A. Municipal spending is not of an implied speed that it needs to "slow down". 

B. Maplewood is more highly desirable than ever as evidenced by a hot SELLERS market (still). That's a good thing for homeowners.

Also: This little item also contributes to a sellers market:

  • The average rate on the 30-year fixed-rate mortgage fell to 4.06 percent for the week ending March 28, 2019, down from last week when it averaged 4.28 percent, according to Freddie Mac.
  • A year ago at this time, the 30-year fixed-rate mortgage averaged 4.40 percent.



joan_crystal said:


Steve said:


ml1 said: and if you rented, you'd be paying tax on the gain on your 600K home.
Doubtful.  If the home has been your primary residence for two of the five years prior to sale, you can exclude $250k in gains per taxpayer (i.e., $500k for a couple).  That'll cover the vast majority, if not all, of the gain on the sale of the home. 
 A lot of the long time home owners in our town are widows/widowers/divorcees thus an exclusion of only 250K.

But, at the death of the first spouse, if the house is in both names, the deceased spouse's share of the house gets a step up in basis to the current value.  In other words, if the house were purchased for $100k in 1980 by both spouses equally, when the first spouse passed away - say in 2015, when the house was worth $800k, the tax basis for the house increased from $100k to $450k.  Yes, when the surviving spouse sells, the first $700k will be excluded from taxation.  Of course, this presumes no other impacts.  Consult your advisor.  Thus is not tax or legal advice.


For some of us it is simply heartbreaking to  face leaving our homes and trying to pick out a strange house in a strange place to live out our lives post retirement. Kind of like being floated out on the ice. I'm afraid that all of the mathematical formulas do not ease the sadness.

As for the lose of SALT, I believe it will have some impact. When I sold real estate, I used the tax deduction argument often. Relocation will often spur sales for awhile but with so many homes in South Orange climbing to a $30,000 tax bill, clients will often look at other towns or consider other counties. But perhaps the market will bare the price.

But as many are pushed out, the supply will often bring prices down later in the season and taxes will come down on those homes adjusted for the sales price. Those prices than become the new comps and neighboring homes who consider selling are now valued at a lower price. 

In 10 years many homes in South Orange will have property taxes of $40,000. We have to look at many factors. The bubble burst before.


sbenois said:
A lot of people are moving because of the SALT cap on their federal taxes.  

What this guy said. 


I’ve moved to MA where taxes are somewhat lower, but we still got stung pretty bad by the SALT limit - more than enough to wash out our slightly lower marginal rate. 


Steve said:


joan_crystal said:

Steve said:


ml1 said: and if you rented, you'd be paying tax on the gain on your 600K home.
Doubtful.  If the home has been your primary residence for two of the five years prior to sale, you can exclude $250k in gains per taxpayer (i.e., $500k for a couple).  That'll cover the vast majority, if not all, of the gain on the sale of the home. 
 A lot of the long time home owners in our town are widows/widowers/divorcees thus an exclusion of only 250K.
But, at the death of the first spouse, if the house is in both names, the deceased spouse's share of the house gets a step up in basis to the current value.  In other words, if the house were purchased for $100k in 1980 by both spouses equally, when the first spouse passed away - say in 2015, when the house was worth $800k, the tax basis for the house increased from $100k to $450k.  Yes, when the surviving spouse sells, the first $700k will be excluded from taxation.  Of course, this presumes no other impacts.  Consult your advisor.  Thus is not tax or legal advice.

My tax adviser stated that this was only true if the house was sold within two years of the death of the first spouse.  I don't know if that is still the case or if results vary depending on an individual's situation.


I believe that would be for the exclusion.  Unless something has changed, there is a step-up in basis to the value at date of death.


The step-up in basis rule applies as follows: 

1) Assume a married couple purchases a home 30 years ago for $100,000, as joint tenants with rights of survivorship.

    - Each spouse's tax basis in the house is one-half of the $100,000, or $50,000.  

 2) One spouse dies and fair market value of the house is $500,000.   

  -The surviving spouse's tax basis is their original $50,000 plus one-half of $500,000 or $250,000. Thus the surviving spouse's tax basis is $50,000 + 250,000 = $300,000. 

i.e., the step-up in basis only applies to the deceased spouse's one-half interest in the property. It's still very advantageous, particularly with the $250,000 exclusion for the surviving spouse. 

eta - Taxes are going to get a lot worse next year when we start paying for the school bond of $130 million. When I tell people in other communities about it they can't believe it. They're shocked. 


I think that is what I wrote above.


joan_crystal said:
My tax adviser stated that this was only true if the house was sold within two years of the death of the first spouse.  I don't know if that is still the case or if results vary depending on an individual's situation.

 the exclusion would be $500k is the sale closes within two years of the spouses death ( and they meet the 2 out of 5 yr rule)



Maplewood is introducing a 2019 budget with a 6.9% tax increase. 

"After years of passing municipal budgets at, below or near the 2% state-mandated cap, Maplewood Township will be introducing a proposed $45.6M 2019 municipal budget on April 2 with a 6.8% tax levy increase.

Why the change from recent years?

According to Mayor Vic DeLuca, “The key drivers of this year’s increase are roughly $450,000 in salary increases for all employees as per the employee contracts; an increase of $1 million in long term debt repayment (which will save us money over the long term); and annual increases in our payments for employee health benefits and pension obligations.”

“To complicate matters,” continued the mayor, “we have less surplus to carry over into 2019, generally because we have kept budgets and tax increases at a minimal the past few years. This practice, which in the past we did to keep tax increase low, has resulted in less surplus funds to carry over into 2019. Additionally, we are in agreement with the recommended (and more conservative) budgeting policies practices of the current CFO [Joseph Kolokziej]. This will help us stabilize Township finances and improve our bond ratings.”

https://villagegreennj.com/towns/government/a-change-in-accounting-causes-pain-in-maplewood-2019-budget/



I thought that was an April Fools Day joke!


Maplewood has been using its surpluses to keep the tax increases under 2%. 

“Things didn’t get broken in a year, they can’t get fixed in a year, but we cannot continue on this path,” said Kolodziej, who urged the Township Committee “to right the ship” by replenishing its fund balance and not using most of it to keep taxes lower. Kolodzief explained that, in the Township’s cash management plan, there is a policy encouraging the use of no more than 50% of fund balance to close a budget gap. “We’ve been utilizing quite a bit more than over 50%,” said Kolodziej. He noted that bond rating agencies look at that number, and said that the practice of using most of the fund balance “has pretty much caught up to us.” Kolodziej said that the town should have been raising taxes higher in previous years.



I need a municipal budget wonk to chime in here.

Does this mean the TC has been mismanaging the budget process for the past several years? Or were we just living on the edge?  I'm not sure I understand what they mean by budget imbalance.

Also, I don't get why they are talking about taking the sewer expense out of the budget and setting up a separate sewer authority?  We pay a separate sewer payment and it goes to the Joint Meeting of Essex & Union Counties.  We are one of the "owner communities."

http://www.jmeuc.com/



joan_crystal said:
If the taxes were really too high, nobody would want to purchase the houses that do go on the market.  From what I see in my travels around town, houses are on the market for a relatively short period of time. School funding via real property taxes and lack of a commercial tax base are what is driving the high residential property taxes.  Sad reality is that as taxes go up, some residents are being priced out of their home.  I'm not sure what we can do to resolve this problem short of major policy changes in Trenton.

I don't disagree with most of this, but "Trenton" = Us.  

We elect three representatives to the legislature.  We help to elect the governor, and SOMA was a frequent stop for Phil Murphy and also his rivals for the Democratic nomination.

None of our representatives, nor Phil Murphy, purports to prioritize stabilizing property taxes.  They all are extremely open about their desires to expand services and thus our taxes.  

If we want to change Trenton we can start by changing whom we elect.  


oots said:


joan_crystal said:
My tax adviser stated that this was only true if the house was sold within two years of the death of the first spouse.  I don't know if that is still the case or if results vary depending on an individual's situation.
 the exclusion would be $500k is the sale closes within two years of the spouses death ( and they meet the 2 out of 5 yr rule)

 Alternatively, the residence can be rented out to an unrelated party for a relatively short period of time and then sold in an IRS approved like-kind-exchange (AKA 1031 transaction).  Surviving spouses then uses a portion funds from sale of the family home (held by a qualified intermediary) to buy one or two condos in a cheaper area.  Creating a situation where the spouse has rental income from replacement condos.  

Surviving spouse takes original basis (say $50k for her share of original basis), plus section 121 exemption ($250k) plus any basis bump-up (say $400k) on demise of spouse as cash for her pocket.  Thus, surviving spouse could keep $700k ($50k+$250k+$400k) without being subject to capital gain on sale of property.  Sales price in excess of $700k would be funneled into the like-kind-exchange.


sounds like another material tax hike is forthcoming.  Cannot wait for the new High School bonds too.  


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