Word of the Week: Ad Valorem Process

The Ad Valorem Process and How Virginia Property Taxes are Assessed

We’re back with our Real Estate “Word of the Week“! This week we are going to explain what the Ad Valorem Process is.

Ad Valorem Process: The process by which many state and local governments assess real estate taxes for operating revenue. The term “Ad valorem” is Latin for “according to value.” Ad valorem taxes are based on the unique assessed value of the subject property.JS Realty House Tax ad valorem

There are three types of property: Land, Improvements to Land (immovable man made things), and Personal (movable man made things). Real estate, real property or realty are all terms for the combination of land and improvements. The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.Prop Tax Note JS Realty ad valorem

Property Tax Assessment in Virginia

In Virginia, property taxes are calculated by multiplying a home’s assessed value by its total property tax rate. State law requires cities to reassess every two years and counties every four years. Since properties aren’t reassessed yearly, the assessed values typically diverge from market values over time. The state of Virginia conducts an annual sales ratio study to determine the ratio of assessed values to market values. While ratios are generally close to 100%, in some cases they are not.Tax Rate Calc JS Realty ad valorem

This means that it is entirely possible to notice significant changes to assessed values. According to Virginia state law, total taxes across a tax district cannot increase by more than 1% because of a reassessment. However, taxes on an individual property can increase by any amount. Keep that in mind as reassessment approaches!

The Real Value of Your Home

So, what is my home really worth? The purpose of reassessment is to determine the fair market value of a property. This is the price the property would sell for on the open market. However, as we mentioned above, the assessed price can often diverge slightly. Couple that with the often misleading estimates on popular Real Estate websites, and it can make for a very confusing conversation if you’re looking to sell your home. JS Realty Mortgage Tax Advantages ad valorem

Our Real Estate Team does extensive research before presenting a pricing strategy to a client. Homes that have recently sold in the neighborhood and surrounding areas (referred to as “comps” or “comparables”), the tax assessment, as well as current market trends all factor into our price conculsion.

JS Realty Free Analysis Contact ad valoremOur Expert Realtors offer a FREE, no obligation consultation and Home Analysis. If you’re thinking of placing your home for sale, we would love help you reach your Real Estate goals. Simply contact us below and one of our Agents will be in touch.

Tax Advantages of Buying a Home

For many people, purchasing a home, or homes, is the single largest investment they will make in their lifetime.  It is a decision that will affect their finances, lifestyle, and family for years to come.  Because of this impact, it is important to consider all aspects of home buying, along with the pros and cons of the choices that are being made. Aside from the actual home buying process, a question most homeowners have is: “What are the tax advantages of buying a home?”


When considering a home purchase, one very big pro is the favorable tax JS Realty Mortgage Tax Advantagestreatment you are able to take advantage of on your individual tax return.  Deducting mortgage interest and real estate taxes is often what makes it more beneficial for taxpayers to itemize their deductions (rather than using the standard deduction); along with state income taxes paid.  This makes itemizing more advantageous. These deductions reduce taxable income, which in turn, reduces taxes due. Typically, personal interest, such as credit card or car loan interest paid is not deductible, but qualified residence interest (with a few restrictions) is fully deductible.

You can deduct the interest paid if you meet the following criteria:

–Your home is your principal residence (meaning that’s where you spend the majority of your time)
–The loan is $1 million or less, and secured by your home
–The loan proceeds were used to acquire the home, or were used to substantially improve your home

JS Realty lender man mortgage contractYou can also deduct the interest on a second home mortgage (such as a vacation or mountain home), as long as the second home mortgage amount, when combined with the principal residence mortgage, does not exceed a combined total loan amount of $1,000,000.  For example, if your principal residence mortgage equaled $700,000, and you purchased a second home with a mortgage of $600,000, you would be able to deduct the interest on your $700,000 principal residence mortgage and you would be able to deduct the interest on $300,000 of your second home mortgage ($1,000,000 – $700,000) for a total interest deduction on $1,000,000 of your mortgage balances.

JS Realty Mortgage Tax AdvantagesThe interest on home equity loan debt is also deductible.  The home equity loan interest deduction is the interest on a loan amount that is the lesser of the loan balance, up to a $100,000 loan, or the fair market value of the home minus acquisition indebtedness.  This interest is deductible for regular tax purposes, no matter the use for the money.  If the loan is not used to acquire the property or make substantial improvements to the property, then careful consideration should be made before securing consumer debt with your home.  If it is the right option for you, home equity loan debt can be used to purchase a new car, a vacation, a hot tub, consolidate credit card balances — whatever your heart desires.  The interest will be deductible for regular tax purposes, however the amounts are not deductible when calculating alternative minimum tax (AMT) .  The ability to deduct home equity loan debt interest allows individuals to effectively exceed the $1 million loan limit by an additional $100,000, thus making the interest on combined home-secured loans up to $1.1 million, deductible.

The table below illustrates how various income levels and age groups would likely be affected if the mortgage interest deduction were not allowed.  For, example, average homeowners with income over $250,000+ would generally see an increase in their tax bill of $5,408, if the mortgage interest deduction were not allowed.  Another way to look at it, is that homeowners with income over $250,000 on average will see a $5,408 reduction in their tax bill when taking the mortgage interest deduction.  The ultimate benefit to a particular taxpayer is a case by case analysis that depends on the timing of the home acquisition, the interest rate of the loan, the principal of the loan, income level, other itemized deductions, etc.

JS Realty Tax Eliminating the MID

Points paid that are associated with initial acquisition indebtedness or are associated with the substantial improvement of a principal residence may be fully deductible.  Points paid that are associated with the acquisition indebtedness of a second home must be amortized over the life of the loan.  Points paid on all refinances must be amortized over the life of the loan.  All other settlement costs are required to be capitalized and added to the basis of the property.

Every home has real estate taxes and those are deductible as well.  And unlike qualified residence interest that can be deducted on a principal residence or second home, the real estate taxes paid on all of your properties is deductible, even if you own more than two properties!

Home Sale Sell JS RealtyA final major tax advantage comes when it is time to sell your home.  If you own and live in your home for two of five years and you haven’t sold another home within the two years prior to the sale date, the gain on the sale, up to $250,000 ($500,000 for married filing jointly), is excluded from income tax.  The con side to this exclusion is that any loss on personal residence is not deductible.

There are significant tax advantages to owning a home, and several rules and restrictions in place on the tax treatment of various items.  Consult your tax advisor on the proper treatment for your situation.  Should you need a tax advisor, Thompson Greenspon is happy to assist with your tax preparation and planning needs.

JS Realty Thompson Greenspon logo4035 Ridge Top Road #700, Fairfax, VA 22030
(703)385-8888  |  www.tgccpa.com


VA Sign Cardinal JS Realty WelcomeLet’s face it, nobody likes to pay taxes. Taxes are a necessary evil to keep our government running. Understanding how taxes are levied might help ease the pain… or inspire you to get involved and have your opinion heard.

Virginia collects taxes on Real Estate a few different ways.

All property owners pay yearly property tax on the fair market value of their Home Sale Sell JS Realtyholdings. When you sell a home the Seller pays a Grantor’s tax, and in Loudoun, Fairfax, Prince William, and Arlington Counties, along with the cities of Alexandria, Fairfax, Falls Church, Manassas and Manassas Park, the Seller also pays a “Congestion Relief Fee” to the state of Virginia. The Buyer has transfer taxes that go to the city/county and the state of Virginia. As you can see, all parties in a Real Estate transaction get taxed on the purchase or sale of a home.

Property taxes are levied once a year by the county or city that you live in. They are paid in 2 installments throughout the year, usually December and July.
Prop Tax Note JS RealtyUsually your mortgage company escrows money from your monthly payment to cover your property taxes. Lenders do this to make sure the taxes on the home are being paid so there isn’t a lien placed on the property. The amount the property owner pays is determined by the fair market value of the property. An annual assessment program is used to calculate the amount. Owners pay a percentage, known as the property tax rate, on 100% of the fair market value as of January 1. Current years assessments are based on the past year sales. Assessed values are determined by a mass appraisal of similar properties that have been recently sold.

Property Value Tablet JS RealtyDon’t confuse an assessment with an appraisal or sales price. An appraisal is a detailed property valuation that a Lender performs at the time of the sale of a property. Sales price is the actual amount the property sold for. These numbers differ due to the complexity of Real Estate transactions. For example, the sales price of a home can differ from the assessed value or appraised value due to many external circumstances, such as the owner needing to sell quickly due to financial distress, or a homeowner selling their home to a family member at a price below market value.

Tax Rate Calc JS RealtyAnother way taxes are collected is at the settlement of the sale of all property. The Seller pays a Grantor’s tax, and in some jurisdictions a congestion relief tax. Both of these are calculated by a percentage of the value of the home, either the sales price or the appraised value, whichever is higher. The Virginia General Assembly currently has set the rate at $2.50 per $1,000. The purchaser pays recordation taxes to the county and state. These tax stamps vary between the jurisdictions and are sent to the clerk of the court.

Virginia Dollar Sign JS RealtyCollecting Real Estate taxes is a large portion of revenue for both the state and local jurisdictions. In 2014, Real Estate construction contributed 6.1% to the nation’s economic output as measured by the Gross Domestic Product. Real Estate drives many facets of our economy, so therefore it makes sense that it is a large part of the tax base.

The JS Realty Team @ Samson Properties strives to keep our clients informed on all aspects of the Real Estate industry. Feel free to contact us with any questions or comments about Real Estate tax.

If you are looking to buy or sell a home, contact us today for a no-obligation consult!

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The JS Realty Team – not only serving Brambleton, serving all of Northern Virginia.