Ohio Real Estate Tax “Avoidance”

Not paying taxes that are legally owed is often referred to as “tax evasion”, and has been, is and will always be illegal. Reducing one’s tax burden, legally, however, by taking advantage of applicable exemptions, credits…and other tax saving techniques authorized by law is not only legal, but smart. In other words, don’t pay the “tax man” any more than you have to.

Before you pay your next Ohio real estate tax bill, keep in mind the following:

I. Owner-Occupied 2.5% Credit

 If you reside in your own home in Ohio, you are due a 2.5% reduction on your property tax bill.  All you have to do is apply for this reduction. The reduction is often taken care of at the time of purchase of the real estate if the Real Property Conveyance Fee Statement of Value and Receipt (Form-DTE 100) is correctly filled out.  To receive the two and one-half percent (2 1/2 %) homestead tax reduction, you must own and occupy your home as your principal place of residence on January 1 of the year you file for the reduction. A homeowner and spouse are entitled to this tax reduction on only one home in Ohio.  

·         Download the Application for Two & One-Half Percent Tax Reduction on Owner-Occupied Homes.

In Summit County it is estimated that over 30,000 eligible homeowners have not applied for the 2 1/2 % homestead tax reduction, and in Cuyahoga County, it is estimated that over 80,000 homeowners are eligible for the reduction but have not applied. Homeowners can check their tax bill to see if they are receiving the benefit; or call their county auditor or fiscal officer

II. Homestead Exemption

The Homestead Exemption allows senior citizens and (permanently and totally) disabled Ohio residents to reduce their property taxes by protecting some of the market value of their home from taxation. The exemption, which takes the form of a credit on property tax bills, allows qualifying homeowners to exempt $25,000 of the market value of their home from local property taxes. For example, through the Homestead Exemption, a home with a market value of $100,000 would be billed as if it is worth $75,000. The exact amount of savings will vary from location to location. But overall, across Ohio, qualified homeowners should save an average of about $400 per year.  
 

Note, however that a “qualifying income requirement” ($31,000/yr. or less) was recently added as a condition to receive this exemption. AS OF THE 2014 TAX YEAR: INDIVIDUALS WHO TURN 65 IN 2014 (and thereafter) OR WHO BECOME DISABLED AFTER JANUARY 1, 2013, WILL BE REQUIRED TO HAVE OHIO QUALIFYING INCOME ($31,000 OR LESS FOR THE 2015 TAX YEAR) IN ORDER TO RECEIVE HOMESTEAD EXEMPTION BASED UPON AGE OR DISABILITY.

To apply for the Homestead Exemption, complete the application form (DTE 105A) - Homestead Exemption Application Form for Senior Citizens, Disabled Persons, and Surviving Spouses. Then file it with your local county auditor. Applications for the Homestead Exemption open the first Monday in January, and must be received by your county auditor’s office no later than the first Monday in June.

III. Total Exemptions

Pursuant to Ohio Revised Code Chapter 5709, there are a number of types of property uses that are exempt from real estate taxes altogether. Included are: schools, churches, and colleges (ORC Sec. 5709.07); government and public property (ORC Sec. 5709.08); public recreational facilities used for athletic events (ORC Sec. 5709.081); property used for public or charitable purposes (ORC Sec 5709.12) and property used for nature preserves. While there is a form to apply for these exemptions, (http://www.tax.ohio.gov/portals/0/forms/real_property/DTE_DTE23_FI.pdf ), it is highly recommended that a tax attorney be consulted because the eligibility requirements can be complex, and the form is not a simple, “fill in the blank type form”.

IV. Segregation Techniques

Remember, real estate taxes are supposed to tax …you guessed it, real estate and real property; not personal property. Basically, as a general rule, real property refers to land and things permanently attached to the land. Personal property generally refers to everything else: the items which are movable and not a part of the land (and that are intangible in nature). This is an over simplification, however, because the character of personal property can be altered. 

Property that is initially personal in nature becomes part of realty by being annexed to it. In certain cases, the intention or agreement of the parties (in a lease, for example) determines whether personal property retains its character as personal property. Additionally, complex tax code provisions and regulations will dictate (in terms of deductibility) what is personal vs. real property. Nonetheless, with certain items, there is no question. For example, a dining room table and chairs are definitely personal property in a residential context, and a commercial manufacturer’s plating equipment is definitely personal property in a commercial context.

The best time to recognize this difference, and segregate property accordingly is prior to purchase. In fact, the conveyance statement referred to earlier specifically calls for segregation. Segregating personal property value from real property value at this point will save conveyance fees on closing ($4/$1,000 of  real estate value), as well as real estate taxes after the purchase, as the auditor will likely value the property at its conveyed value. For complex commercial properties, a cost segregation study is strongly advised. A cost segregation study (CSS) is a strategic tax tool that allows owners to allocate building costs between real estate and personal property based on case law and IRS guidance using qualified construction engineers and estimators to perform the study. The result is to accelerate depreciation in the early years of a project’s life, producing deferred taxes and increasing cash flow during that period.  A company like Duffy+Duffy Cost Segregation Services can provide the analysis required.

V. Contest Your Valuation/Taxes

 

Note: The Board of Revision Will Only Accept Tax Year 2014 Complaints between January 1, 2015 and March 31, 2015.

To successfully challenge a property’s taxable value, you will need to establish at least one of the following facts:

·         The county tax assessor relied on information that is incorrect or incomplete. For example, the assessor may have assumed that your home contains 3,000 square feet of space when it actually has only 2,500 square feet.

·         The tax assessor set the taxable value of your property higher than the taxable values of similar properties in your community.

·         The tax assessor assumed that the current market value of your property is higher than it actually is.

If you are convinced that any of the above facts is true, consider first, conferring informally with your county auditor. Many counties set up an informal meeting process with official notification of the same. Even if this process is not officially set up, however, you can still contact the auditor. If you have convincing evidence that the tax assessor has overvalued your property, he/she may agree to change the value. In that case, you will not need to file a complaint. You can get contact information for your county tax assessor from the County Auditor's Association of Ohio.

One other factor to consider before deciding to file a complaint is whether the property was recently acquired through a transfer by deed.  If the transfer occurred within a couple of years of January 1 of the year for which you are considering filing the complaint, the board of revision usually presumes that the price paid for the property is the best evidence of fair market value of the property.  This presumption is a benefit to taxpayers if the price for the property was less than the value that the auditor assessed for the applicable year. Unfortunately, if the opposite is the case, expect to pay additional taxes soon. Also keep in mind that if you have evidence of a major casualty, the auditor will usually lower the value accordingly, based on this information, without need for a hearing.

If an informal adjustment is not made; definitely consider filing a complaint with the applicable county board of revision. An attorney is always advised, and sometimes required to initiate the action. Some attorneys will handle tax complaints on a contingency basis, or at least give you a good guestimate of fees. If successful, a lowered valuation (and accordingly, lower taxes) will usually outweigh the legal costs to challenge same.

The moral of today’s story?  “Don’t “leave money at the table”. Make sure you are getting the relief you are owed from statutory tax exemptions, and consider tax savings techniques that can save you even more. We need all the help we can get these days; especially from the “tax man”.