The Trouble with Taxes

The Trouble with Taxes: New Construction

Guest Post from Lee A. Cohen, Neel, Robinson & Stafford, LLC

Trouble with Taxes

We are fortunate to have a guest post from our friend Lee A. Cohen from Neel, Robinson & Stafford, LLC. Lee shares important facts on how to avoid trouble with taxes.

A buyer should be aware of two primary property tax concerns when purchasing a newly constructed home:

1. The tax proration between the buyer and seller on the settlement statement:

Q: What does the buyer need to know?

A: The buyer needs to know if the proration is based on unimproved property (land only) or improved property (completed home).

Why does it matter?

It matters because the buyer may either owe additional money to the seller or be due additional money from the seller once the taxes are assessed for the year.

FYI- Whether a property is assessed as improved or unimproved typically depends on the stage of construction at the beginning of the year.

 

2. The monthly property tax escrow amount:

Q:  What does the buyer need to know?

A:  The buyer needs to know the total amount the lender is using for the annual taxes.

Why does it matter? 

It matters because the buyer will be responsible for any shortage in their escrow account when the taxes come due.  In most cases, the lender will calculate the monthly escrow amount using 1% to 1.5% of the purchase price.  If the property is assessed on improved property and the estimated taxes were too low it will result in an escrow shortage.  Some lenders will only escrow based on the prior year taxes, which were most likely assessed on unimproved property.  This could result in an extreme shortage in the escrow account and the buyer’s monthly payment will increase substantially once the property is assessed with the completed home.

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Written By:

Lee Cohen

Lee A. Cohen
Neel, Robinson & Stafford, LLC
5555 Glenridge Connector
Suite 400
Atlanta, Georgia 30342
Direct 404.705.7992
Main 404.459.9600
www.neelandrobinson.com

If you have any questions regarding this information or have any other real estate needs, please give your  friends at Kelly Marsh & Associates a call 404.419.3601

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