The Importance of Property Tax Compliance for Investors
Investing in real estate remains one of the best ways in which a person can accumulate wealth, properties usually appreciate in value and have the ability to generate reliable monthly cash flow. Investing in real estate is often deemed to be less volatile than investing on the stock market. Let’s look at and explore the importance of Property Tax compliance that reduces your taxable income.
What is Property Tax?
Property tax is often a charge which is levied by the government which owners of real estate need to pay. The amount of tax which is payable is dependent on the percentage of the assessed value of the real estate.
Failing to follow and adhere to property tax and property tax compliance can often result in hefty fines, penalties and interest, tax liens and or foreclosure or lastly possibly legal action therefore it is best to stay ahead when it comes to complying with property tax.
Currently property tax is divided into two categories, real property and personal property.
Real property taxes include:
- Land including the buildings and fixtures which are permanently attached to it
- These taxes are assessed on the use which you use your property for; agricultural, commercial, industrial, residential and utility property.
- These taxes apply to all 50 states.
Personal property taxes:
- This is a tax that is levied on movable items and assets which include machinery, fixtures and other similar equipment- this is deemed to be property which is not permanently fixed to the land.
- Does not apply to all 50 states, these are regulated at the State level.
Challenges which arise with property tax compliance:
Often needing to comply with property tax is daunting and some of the issues could include:
- Returns need to be posted for personal property tax.
- Assessments are compared to the fair market value where there is a limited time period in which you can appeal the assessment.
- Bills companies will sometimes receive hefty tax bills from different jurisdictions, which makes it difficult to understand as different rules, due dates and or discounts will apply in different states or different jurisdictions.
- Documents need to be kept and organized for audit services, they will also need to be kept up to date and to avoid missing due dates and possibly incurring penalties.
Maintaining Compliance:
Not complying with property tax laws often results in an investors reputation and credibility becoming tarnished within the industry. Having or being referred to as someone who has a history of tax delinquency may result in future business partners, lenders or tenants avoiding you and refraining from engaging with you as their investor. Ensuing that you comply with property tax demonstrates that you have a commitment to ethical business practices and risk management.
Property taxes are a recurring expense that investors will need to account for in their financial planning. By budgeting accurately for property taxes, investors will be able to avoid cash flow shortages and ensure that their investments are sustainable, the other added benefit is that if investors stay informed regarding changes in tax rates or assessments it allows them to adjust their financial strategies proactively and get a bigger return on their investment.
Government entities and programs have established incentives which aim to reduce tax burdens and therefore result in promoting property improvement. Therefore by ensuring that you remain up to date with property tax compliance, investors will have the added benefit of taking advantage of these government incentives to enhance their returns and therefore result in contributing to community development.
Property tax compliance is a fundamental development and skill that is needed for those who are interested in successful real estate investing. Lowering your taxes will essentially result in increased cash flow for the investor. Property tax compliance ensures that investors are compliant with the laws and regulations, ensures that the investment value of the property is preserved, it mitigates risks and leads to a better reputation for the investor in the industry. Therefore prioritizing tax compliance and remaining informed regarding the relevant regulations and methods to be adopted investors will be able to safeguard their assets, resulting in better financial performance and therefore ultimately contribute in a positive way to communities in which these investors operate.