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The Facts on the Real Estate Tax

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Get out your calculators.  It is time to talk once again about AVI.

That's the acronym for the city's real estate re-evaluation program currently underway.

By the end of the year, every property in the city will be re-assessed and assigned a value that is supposed to reflect its true market value.  AVI stands for Actual Valuation Initiative, though the way it's been handled by the Nutter administration, I am more inclined to call it  ASU (All Screwed Up.)

I posted a piece last week that outlined how AVI is mostly murky.  Even though the bill was moving towards consideration in City Council there were a lot of unknowns.

There are fewer unknowns this week.  Here is what we know now that we didn't know then:

-- AVI is going to pass.  At least the odds are in its favor.  It appears City Council President Darrell Clark has cobbled together the 9 votes he needs to get it enacted.

-- Originally, AVI was going to be used to raise $95 million for the public schools.  That appears to be no longer the case.  AVI will raise $40 million and and another $45 million will be raised through an increase in the Use & Occupancy Tax, which is the tax commercial renters pay to the city for the privilege of....well, being in Philadelphia. The rate currently is $4.62 per year for each $100 of assessed value.  The last time it went up was in 1990.

-- We know what the percentage multiplier will be -- or, at least, we are closer to knowing it.  AVI consists of three parts: The new value of your home multiplied by a percentage rate = your new tax bill.

No one will know the new values for their homes until the fall.  they are not due to be released by the city until October.  But, based on preliminary data on total value of real estate, Council has decided the multiplier must be between 1.71 percent and 1.77 percent.

So, if you house is valued at $300,000 under the new system, you take $300,000 x 1.75 to get your new bill = $5,250.

There is a wrinkle here. Council also has decided to give a homestead exemption to every property owner who applies that is equal to $30,000. It will come off your new value. So, the equation really will be $300,000-$30,000=$270,000 x 1.75% = $4,725.

Here's another hitch. Even though we won't know the new real estate values until October and we won't get our actual tax bills until December-January, you must apply for the homestead exemption before July 31. I would encourage you to do it today. You can get the application form by clicking here. You will also need your Office of Property Assessment number for your property. You can get it going here and typing in your address. You can also get your current market valuation from the same site.

There is also talk of offering "gentrification relief" for property owners who have lived in their homes for more than 10 years and whose new AVI is three time higher than your old market value.

Let me offer a caveat. Though it appears AVI is advancing, there are still hurdles: there is enabling legislation that must be passed by the state legislature and signed by the governor (allowing the homestead exemption and allowing council to set a new tax rate, to name two items.) And while Council is moving towards passage, it hasn't broken the ribbon yet. So, the deal isn't done.

There are obviously going to be winners and losers with AVI. The biggest losers will be property owners whose homes have increased dramatically in the last 10 years. They could see their tax bills double. Who are they?

Well, we can figure that out in a rough way, based on data the city released about current market value and estimated market values. The list of neighborhoods is incomplete (Why? I do not know. But, be aware that your nabe will not be there.)

My analysis of the data shows that these neighborhoods will have the highest increase in taxes, amounting to many thousands of dollars on some homes:

Rittenhouse Square

Logan Square

Spring Garden

Spruce Hill/ University City

Fairmount

Queen Village

Chestnut Hill

Central Roxborough

Wynnefield

East Falls

On the other hand, there are 18 neighborhoods where, it appears, property tax bills will go down -- in some cases considerably. There is a list of those neighborhoods:

Lawncrest

East Oak Lane

Port Richmond

Ogontz

Harrowgate/St. Hugh

Tacony

Norris Square

Strawberry Mansion

Nicetown

West Fairhill

Brewerytown/Sharswood

Allegheny West

Kensington

Carroll Park

Walnut Hill

Eastwick

Paschall

Kingsessing

The other 14 neighborhoods will see increases, ranging from slight (Frankford +$80) to more substantial (Mantua +$970) For a complete list of the neighborhoods -- and how much their values have risen -- click here.

Keep in mind here the joke about the statistician who drowned in a river that had an average depth of three feet. These are averages -- the size of the increase or decrease will depend on the value of your home.

The best way to figure it out is to ask yourself: How much coould I sell my house for tomorrow? (Not the asking price, the sale price) subtract $30,000 from that figure to account for the homestead tax and multiple that total by 1.75%.

A random thought: for every action there is an equal and opposite reaction.

It looks as AVI is going to pummel the neighborhoods in and around Center City that have been attracting new residents in recent years. I wonder if tax bills that are two or three times higher will stop that transformation in its tracks and prompt some of those would-be gentrifiers to look to the burbs (with their good schools, greenery and near zero crime) as an attractive option.

Also, while taxing property has many advantages, but keep in mind it is a tax on unrealized value. It's may be comforting to know that I would sell my house for $350,000 tomorrow, but I don't intend to sell. I plan to live there for many years. In a way, the city is cashing in -- in advance -- on my gain.

-- Tom Ferrick

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