By Mike Kent
With all the news of unprecedented housing demand at a time when we have little to no inventory, the huge gain on real estate excise tax (REET) revenue is an overlooked godsend for taxpayers. The hike should help avoid the need for a nationwide tax hike as home prices hit numbers no one could predict.
With 79.4 percent of REET going to the Washington Treasury Department’s general fund, we should sleep well knowing that taxpayers’ reserves (ours) are in good shape. In simple terms, the sales volume reported by the Multiple Listing Service (MLS) for the past 12 months for all properties nationwide exceeded $ 72 billion from $ 49 billion last year. In short, this resulted in at least an additional $ 400 million in tax, excluding the unreported sales to the MLS, which is valued at up to 1 in 4 transactions based on buyer demand, with homes selling before they are even listed . So it’s easy to expect that the real figure is likely to be over half a billion in additional revenue across the country.
The upscale home market saw some of its biggest gains over the past year and when combined with the new “tiered property excise taxes” the final numbers only rise. Instead of the previous flat rate, which we have used for years, changes have been made, which are structured as follows:
• 1.1 percent excise tax levied on home sales on $ 500,000.00
• 1.28 percent for $ 500,000 to $ 1.5 million
• 2.75 percent for $ 1,500,000 to $ 3 million
• 3.0 percent for properties sold over $ 3 million
Of course, in today’s marketplace, few homes sell for less than $ 250,000, and tax dollars from large sales have skyrocketed. For example, the recent sale of the Horizon project for $ 14.3 million resulted in $ 448,555 in excise taxes. These substantial tax contributions should not only help contain the state tax hikes, but also help at the local level, as cities can also levy up to 0.5 percent.
What is this tax money actually used for?
As of January 1, 2020, 1.3 percent of the state REET collected by the counties will be withheld to cover administrative costs.
From the net proceeds to the state:
• 1.7 percent go to the account of public construction subsidies;
• 1.4 percent go to the city-district aid account;
• 79.4 percent go to the general fund;
• And the remainder goes to the Educational Heritage Trust Fund.
The prospects for further increases in the value of real estate over the next few years should further increase our reserves, both in the education sector and in the general fund in particular. Many taxpayers believe that the temptation to spend it should be contained as the general fund should also be our rainy day account.
The biggest downpour to date has certainly been Covid-19 and the strain it put on many segments of our economy. Ironically, the real estate sales boom came and will come to the rescue thanks to REET revenue from rising real estate prices.
Another reason the state brokerage association continues to push back on increases in REET percentages for homeowners is because the past year has clearly shown that there is no need for higher taxation on property owners. If the real estate market had collapsed as a result of Covid-19, the discussion could be different, but instead real estate soared and in turn benefited every taxpayer.
Mike Kent is a real estate agent at Windermere Real Estate. Every Saturday at 10 am he presents the weekly program “Radio Real Estate” on 790 KGMI.