Do you realize that buying a home may have unexpected tax consequences?
Most people only think of two when they purchase a house:
- They will have to pay property taxes, which are typically rolled into their monthly mortgage payment.
- They can deduct mortgage interest from their income taxes, and therefore, reduce their tax liability.
You probably did not think of the impact your purchase will have on your local income taxes.
Local income taxes go to the municipality you live in. That’s the city, township or village that provides basic services, such as police, garbage pickup and emergency services. Most municipalities in Central Ohio had the same local tax rate (2%) until Columbus raised theirs to 2.5%. Some suburbs have increased their rates, as well, but others still hold off at the 2% rate.
If you are lucky enough to live in a township, i.e. outside of the corporate limits of a city or any of the suburbs, you may not have to pay any local income taxes at all. At least not based on your place of residence. If you work in the City of Columbus, you still will have to pay local income taxes at your place of employment.
They get you one way or the other!
The best of both worlds would be to live and work in a township with no income taxes. Orange Township (North of Columbus) may offer this opportunity. Just a word of warning: watch your property taxes in townships. I saw significantly higher property rates in some of townships that will compensate for the lack of income taxes.
How much will you pay in Property Taxes?
You can find out exactly how much you will have to pay in property taxes by using the Franklin County Auditor’s Tax Estimator. It lets you select your school district, then refine the search with the tax district the house is located in.
You can also find the tax district in the right lower corner of the property summary at the Auditor’s website. Click on the tax district and you will see a map of the area covered.
What’s the Local Income Tax Rate in my Community?
The Ohio Department of Taxation has assembled a page with Municipal Income Tax Forms and Information. There you can find local income tax rates and how taxes need to be filed.
Many municipalities are part of RITA (Regional Income Tax Agency) which is a portal for paying local income taxes. Click this link for the current tax table (PDF) of all participating Ohio municipalities.
Here’s an example of how rates may vary dependent on the location of your property. This HUD condo with a prestigious New Albany address is located in the City of Columbus and the Columbus School District.
6054 W. New Albany Rd, New Albany, OH
1,224 sqft 2BR 1/1BA built 2003 Asking $89,000
Auditor’s value: $120,900 Annual taxes $2,342
Would this home be in the New Albany School District, the annual property taxes would increase to $2,925, which is 25% higher than in the Columbus School District.
As the condo is located in the City of Columbus the local income tax rate for its owner is 2.5%, while the income tax in New Albany would be 2%.
Thanks for reading the susannenovak.com Blog!
Posted by: Susanne Novak, ABR, FIS, GRI
Columbus Real Estate Agent helping First Time Buyers.
(614) 975-9650