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Today's DC Examiner published my oped McLean’s rich and famous also get tax advantages focusing on how tax assessments on the most expensive properties in McLean, Virginia, are well under actually market value, unlike those of 'moderate' and 'affordable' housing.

Fairfax County’s failure to assess luxury homes at full value means lower taxes for wealthy homeowners — and a greater tax burden for everybody else.

One of the notables called out is Richard Cheney, whose property is assessed at less than its 2000 purchase price ... reducing his tax burden by perhaps $50,000 year in, year out ... and leaving the community with that much less money to pay teachers and policemen and to build parks.

In one corner of the nation, McLean, Virginia, it seems that those in the most expensive properties have a hidden tax subsidy -- with homes assessed at significantly lower rates than those of their fellow citizens not residing in multi-million dollar residences.

The inequities in real estate values in became apparent through comparing mansion listed sales prices with assessed values ... on the top six properties for sale earlier in 2006, just one was assessed at over 50 percent of the price that the seller was asking (and it ended up selling at just above that assessed price). On the other five properties, Fairfax County's assessed values totaled $29 million while the asking prices totaled more than $79 million.

In other words, looking at just five homes, there was potentially over $4 million dollars in lost tax revenue, year-in, year-out ... tax revenue that has to be compensated for through revenues collected on those not living multi-million dollar residencies.

My outrage over this situation led me to start looking high end streets in McLean -- which is one of the richest parts of Fairfax County, Virginia, which is one of the richest counties in the nation.

When examining these homes, not only does one find numerous examples of homes that are quite probably significantly underassessed, relative to their "fair market value", but interesting information as to just who is profiting from this (now not-so) hidden tax subsidy for the homes of the rich and (in)famous.

To take a rather stark and prominent example:  the Vice President's situation .. e.g., Richard and Lynne Cheney's property

on Jan. 12, 2000, Vice President Richard B. Cheney bought a property for $1.35 million on Chain Bridge Road, one of the top-end streets in McLean — one of the richest parts of Fairfax County, which is one of the richest counties in the United States. The 2006 assessment is $1.045 million — or less than 80 percent of what the Cheneys paid for the home.

For the past six years, a time period in which the average Fairfax homeowners’ assessments increased more than 10 percent annually, Cheney’s tax assessments were lower than what he paid for the property in 2000. His land assessment did go up 25 percent this year, but the assessment on the land portion of my property went up 50 percent.

When the Cheneys bought the property, the tax assessment was $841,600 — of which $413,200 was for a structure they immediately had torn down. The 2001 assessment for just the land then fell to $450,000 — a $21,600 increase (less than 5 percent) over the 2000 land value.

To believe that the Cheneys’ tax assessment has been reasonable over the past six years requires an assumption that the land was worth less without the structure than with it — when their first action after purchase was to tear it down. Any Realtor knows a "tear-down" is valuable for the land it sits on; the existing structure actually has negative value because it costs money to have it torn down.

Realtor acquaintances estimated the land value of the Cheney’s property between $2.5 and $6 million. If that estimate is accurate, Cheney has been underpaying his fair share of real estate taxes by anywhere from $15,000 to $50,000 each year for the past six years — while the McLean inside-the-Beltway real estate market was easily averaging 15 percent annual increases.

If one were to take the Cheneys’ $1.35 million purchase price as their own "fair market value" assessment of the land’s value, its fair market value as of Jan. 1, 2006, is $3 to $4.5 million — right in the sweet spot of realtors’ estimates.

The Cheney property is just the tip of the iceberg.

KEY NOTE:  This discussion (and the other diaries/OPEDs) is 100% based on public records that are available to any and all via the worldwide web.  For example, the
Fairfax County Department of Tax Administration's Real Estate Assessment Information Site

Now, there are many reasons for discrepancies between prices for homes put on sale and assessed values.  And, in many areas, land has traditionally been undervalued compared to structures -- thus, destroying a structure lowering property assessed value is not shocking.  And, assessing high-end properties can be difficult, trying to determine just what it would sell for on the open market.  

But, with a law that calls for assessments at 100% of fair market value, one has to question whether these long held practices are still appropriate. And, whether it is appropriate for the property assessors to so systematically undervalue the most valuable homes and thus shift, even inadvertently, the tax burden to those living in less luxurious or desirable properties.

Originally posted to A Siegel on Wed Nov 29, 2006 at 12:15 PM PST.


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Comment Preferences

  •  Tips / Comments / Flames / ... (8+ / 0-)

    Now, amid the real-estate downturn, fair assessments of the high-end properties (even if years late) could help local governments deal with tax challenges.  

    An extra $50 million, let us say, in property taxes from fairly assessed mansions could help avoid Fairfax County school cutbacks, for example, amid likely 2007 fiscal challenges.

    What is unclear is just how pervasive a problem this is ... while my community has an issue meriting addressing, I don't know how true this is for others.

    Note:  cross-posted at Raising Kaine.

    Energy Consensus: Learn - Connect - Share - Participate: For a new dialogue on Energy issues.

    by A Siegel on Wed Nov 29, 2006 at 12:14:40 PM PST

  •  hey Adam (2+ / 0-)
    Recommended by:
    wyomingdemocrat, possum

    why don't you edit your intro to include the fact that it's your editorial :-)

    Nice work.  I definitely think it should be investigated.

    My friend is running a marathon for cancer research. Help sponsor her--tax deductible too!

    by Dante Atkins on Wed Nov 29, 2006 at 12:20:38 PM PST

  •  Cheney's house assessment (3+ / 0-)

    One of the notables called out is Richard Cheney, whose property is assessed at less than its 2000 purchase price ...

    Remember this when the Wingers ramp up to hysterical about Barack Obama's house (which he bought for less than the asking price).

  •  Hmmm... (1+ / 0-)
    Recommended by:

    There may be a law that calls for 100% assessment, but I don't know what the realities of that are in Virginia. It would be interesting to see what the discrepanacy between assessments and home prices are in the less upscale portions of Fairfax County (yes, they exist) and elsewhere in Virginia as well.

    I do know that paying property taxes that reflect actual market value in Baltimore, Maryland is rare. (Which, to be honest, is a good thing for most Baltimore homeowners, since our property tax rates are among the highest in the nation.)  

    Check out Answer Guy Online. Thoughts from a bottomless pool of useless information.

    by Answer Guy on Wed Nov 29, 2006 at 12:30:58 PM PST

    •  Couple points .. (2+ / 0-)
      Recommended by:
      Answer Guy, happy camper
      1.  Virginia has an annual evaluation.  Maryland is, as I recall, on a three-year cycle.  Thus, there is a lag for 66% of properties.
      1.  In my (very local) community, I have examined several hundred 'mid-price' homes. While at the upper end, assessments at 20-40% of asking prices were not rare, there were zero cases at the mid/low end that I found where a home was put up on the market at a price more than double the assessment price.  And, most were more in the 75-90% percent range.  And, when examining assessments on properties that aren't on sale, where I know the relative value (roughly), the assessments in January really do seem to (in general) represent something like 85-95% of what I would consider fair market value.

      My "data" is certainly not exhaustive, but I have not seen the extremes at mid/low properties that are so glaring in the high-end market space -- at least in my community.

      Energy Consensus: Learn - Connect - Share - Participate: For a new dialogue on Energy issues.

      by A Siegel on Wed Nov 29, 2006 at 12:58:46 PM PST

      [ Parent ]

    •  By the way ... (1+ / 0-)
      Recommended by:
      Answer Guy

      If properties were fairly and timely assessed, then the City would be able to lower the tax rates. In VA, the rates go up and down virtually every year as the localities adjust revenues against changing assessment values.

      By the way, with a MD system (every three years), there sometimes is a gaming with large renovations to schedule completion, in essence, one minute after the deadline for the assessment cycle -- keeping the improvements from being included in tax assessments for a three-year period.  And, then, doesn't Maryland have a cap as to size of increase? Thus, once a property is wrongly assessed (too low), it is pretty much impossible for assessments to catch up as long as there is a rising market. (Oops, guess that isn't a problem any longer.)

      Energy Consensus: Learn - Connect - Share - Participate: For a new dialogue on Energy issues.

      by A Siegel on Wed Nov 29, 2006 at 02:05:29 PM PST

      [ Parent ]

  •  In Portland, Oregon (4+ / 0-)

    From yesterday's Oregonian, "Blight-area tax breaks aid rich":

    Since 2004, Portland's city center has been abuzz with new landmarks: a Pearl District theater, a renovated 1920s-era building topped by a day spa and the hip Jupiter Hotel. Up next, The Nines luxury hotel in 2008.

    One feature connects them: All were made possible by tax breaks Uncle Sam intended to revive America's poor neighborhoods.


    The New Markets subsidies aren't deep enough to make high-risk deals in poor neighborhoods pencil out for investors. So developers have found bigger projects in nicer parts of town -- or on the fringe of a nice part -- that are more attractive to investors and technically qualify as low-income.

    The New Markets Tax Credits were a program Clinton hoped would revitalize perpetually depressed areas of America's cities. Some good things were done with the credits initially, but unfortunately six years since Clinton left office, those credits have seemed to graduate toward projects that benefit the wealthy more often than not.

    •  Fairfax County has this ... (2+ / 0-)
      Recommended by:
      skrymir, Magnifico

      There are revitalization zones that, with certain conditions, allow people to not pay taxes on property improvements for a decade.

      There was a case that made some noise a few years ago where a developer renovated a building in the middle of Tyson's Corner (massive shopping, office area -- won't say community).  Their (West Group) roughly $40 million dollar renovation would have been profitable without this, but due to the tax abatement for being in a revitalization zone (a booming office construction environment), they got the added benefit of paying less taxes on the property year-in, year-out than the owner of the average single-family home in the county.

      While I understand reasons for revitalization zones and how tax benefits can help spur economic development where required, I don't agree with 100% tax avoidance and this part of Fairfax truly did not require such tax assistance programs.

      Here is the home page for these Fairfax County programs ...

      Energy Consensus: Learn - Connect - Share - Participate: For a new dialogue on Energy issues.

      by A Siegel on Wed Nov 29, 2006 at 12:54:18 PM PST

      [ Parent ]

      •  Tysons Corner = Revitalization Zone?! (1+ / 0-)
        Recommended by:
        A Siegel

        That doesn't pass the laugh test, the smell test, or any other test one might conjure up.

        The Route 1 corridor, maybe. Anything else in the county, not so much, and especially not Tysons.

        Check out Answer Guy Online. Thoughts from a bottomless pool of useless information.

        by Answer Guy on Wed Nov 29, 2006 at 02:37:23 PM PST

        [ Parent ]

        •  That was why it created a storm ... (0+ / 0-)

          back in, I think, about 2000 when the story broke.  Led to some changes in the economic revitalization program that made it (slightly) less egregious.

          Energy Consensus: Learn - Connect - Share - Participate: For a new dialogue on Energy issues.

          by A Siegel on Wed Nov 29, 2006 at 02:57:28 PM PST

          [ Parent ]

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