Government rights in land
States right to tax real estate
Passes authority to tax to counties and municipalities
Point of sale - appraised value established by how much the buyer paid for the property
Ad valorem - means “at value”
Milage - varies by district
General and special assessments - additional taxes on properties benefiting from a betterment for something the district has done
Assessment rates in SC
4% for owner occupied residential rates
6% for all other properties
Tax formula
Appraised value * assessment rate = assessed value
Assessed value * millage rate = property taxes
A rental property has been appraised at $92,500. If the millage rate is 127 mills, what are the property taxes?
$92,500 * 6% (assessment rate for rental) = $5,550
$5,550 * .127 = $704.85
rollback taxes
Classify property as agricultural property to get 4% rate
Must have 5 acres or more if growing timber
Must have 1 acres or more for all other products
Must be used for agricultural purposes
If ever used for any other purpose the country will go back 5 years and calculate the difference between the 4% and 6% rate
Eminent domain
Right of the state to take private property
Condemnation is the legal procedure exercised by the state in eminent domain
Two conditions must be met for eminent domain:
Must be for public benefit
Just compensation must be paid
Escheat
Reversion of property to the state when one dies intestate (no will) with no legal heirs
Public controls based on police power
Police power
Authority granted by the government to enforce certain laws, regulations, or policies
Restrictive power - ex: the real estate commission has police power to enforce the license laws
Zoning laws - regulations/restrictions on how land can be used
Categories of real zoning property:
Residential
Commercial
Industrial
Agricultural
Special purpose
Ordinances - the primary intent is to assure proposed land uses conform with the master plan (state)
Variances - permits a change in the specifications required by the zoning ordinance
Non-comforming use - exists when a property is currently being used for some purpose other than what the property is zoned
Can be used in this manner as long as the current owner owns the property
Spot zoning - occurs when a small area in an existing neighborhood is singled out and place in a different zone from the neighboring property
* Buffer zone - strip of land used to separate two conflicting zone types
Building codes
Must receive a permit prior to constriction
Ensures constriction is to code
Ensures constriction meets zoning laws
Permit applications are made to the municipality
Subdivision regulations
HOA’s have police power to ensure owners comply with CC&R’s
HOA’s cna take any actions necessary to ensure compliance
Health and sanitation laws
Environmental protection laws
* environmental impact report
Assessment of possible impact a proposed project may have on the environment
Private controls based on police power
Restrictions we put on ourselves
Deed restrictions
Restrictions placed in the deed, which conveys from one owner to the next
CC&R’s
Put in place by developers and enforced by HOA’s
All owners, present and future, must comply with the restrictions
Environmental hazards
All known environmental hazards must be fully disclosed
Asbestos
Can cause serious health issues such as lung disease
Underground storage tanks
Used to store fuel oil or heating
Should be inspected by DHEC
Must be removed or all fuel oil pumped out and filled with sand
* radon
Corless, odorless and tasteless radioactive gas
Can effect new and old homes alike
Much greater concern for homes with living area below the surface of the ground and homes that have well water
EIFS (artificial stucco)
Water or moisture getting between the stucco and the wall can cause massive damage
Many class action lawsuits are pending
Should not be a problem if properly installed
Toxic mold
Can cause serious health problems
Can cause weakened immune systems
* Lead based paint
Can cause serious illness or death if ingested
* all homes built prior to 1978 must have a written lead based paint disclosure before selling or renting
Must provide all buyers/tenants or homes built prior to 1978 a EPA pamphlet “protect your family from lead in your home”
Wetlands
Land where saturation with water is dominant
Protected areas due to some species living in the wetlands
Includes swamps, marshes, and similar ares
* Real property tax laws
Homeowner tax breaks
* mortgage interest deductions
Up to 1 million dollars on acquisition debt
Up to $100,000 on equity debt
Up to 1.1 million dollars in total
Property tax deductions
Homestead exemption (only in SC)
Those qualified may deduct $50,000 from their homes appraised value before property taxes are calculated
Qualifications for the exemption:
Must be 65 years of age
Totally disabled
Legally bind
Resident of SC for one year as of Dec 31st
* Discount points - prepaid interest to buy down the interest rate
Each point cost 1% of the purchase price
Each point will lower the interest rate by 1/8th of one percent
Deductible by the buyer only (regardless of who pays)
Capital gains tax on sale of real property
Basis - price paid for the property
Adjective basis - live paid for the property plus closing costs and any capital improvements to the property
Amount realized - sells price, minus selling expenses
Gain - amount realized minus adjective basis
example:
$100,000 (purchases price) + $3,000 (closing costs) = $103,000 (adjusted basis)
$130,000 (sales price) + $9,000 (selling expenses) = $121,000 (amount realized)
$121,000 - $103,000 = $18,000 (capital gain)
Capital gains exemption for personal residence
$250,000 for single homeowners or married and file separately
$500,000 for married homeowners
* must know all qualifications for the exemption:
Must have owned the home for at least 2 years
Must have lived in the home for at least 2 of the last 5 years
No deduction if the home sold at a loss
1031 tax-deferred exchange
Method to put off or delay paying capital gains by simply exchanging like properties and no monies passing hands
If the exchange is not even and one has to add anything of value to even up the trade, this is called “boot”
The party receiving the “boot” must pay taxes on the “boot”
Delayed exchange
Method to put off or delay paying capital gains taxes by selling a property and buying a like property in its place
One has 45 days to identify a like property
One has up to 80 days to close on new property
The 180 days starts on the day the property is sold, not the end of the first 45 days