Tuesday, September 18, 2007

over-taxing landlords and tenants

From Lesley Stedman Weidenbener in this morning's C-J:

The state should do more to hold down taxes on rental property, the chairman of a key legislative commission said yesterday after a meeting at which Southern Indiana landlords held up signs demanding help with their bills.

State Tax and Financing Policy Commission Chairman Luke Kenley, R-Noblesville, said rental owners have been cut out of past efforts to cut bills for residential property, and that needs to change.

Many rental property owners serve an "important social function in terms of rehabbing certain areas in lots of communities," Kenley said. "We're discouraging them now" instead of offering them incentives, he said.

Kenley's comments came after a four-hour meeting during which property owners said they should be entitled to the same tax deductions and credits that are available to owner-occupied homes.

Real estate agent Pat Harrison of Floyd County...told the commission that the amount of tax bills "should be independent of who lives in the homes."...

The landlords want lawmakers to extend the homestead exemption, mortgage exemption and homestead credit -- all available only to owner-occupied homes -- to rental properties as well....

One can argue for this on the basis of equity (fairness) or efficiency (why are we punishing productive behavior?)...

"I can't raise the rent," [one landlord] said. "They won't be able to pay it."

That would kind of him, but it's unlikely across the market. When you shift that pesky supply curve to the left, prices have a habit of increasing (especially with an inelastic demand curve-- since renters have few close substitutes). So, at the end of the day, most of the tax burden will be passed on to renters-- yet another case where government subsidizes the relatively wealthy (those who live in a house they own) at the expense of the not-so-wealthy (renters).

According to attorney Thomas Atherton, who spoke yesterday representing the Indiana Apartment Association, the exemptions and credits mean the tax bill on an owner-occupied home valued at $90,000 in Kokomo would be about $983. That same home owned by a landlord and rented would have a tax bill of about $2,252.

Ouch! I'm glad they included some numbers with the theoretical discussion...

Also, the General Assembly passed a law that would begin capping residential tax bills in 2008 at no more than 2 percent of a property's assessed value. That means the owner of a home assessed at $100,000 would not have to pay more than a $2,000 tax bill.

But the cap applies only to owner-occupied homes. The bills for rental properties -- as well as commercial property and farmland -- will be capped at 3 percent starting in 2010.


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