Something you can do

To a large extent, there is little that you can do to reduce your own tax burden without reducing your income even more. You can pay mortgage interest or contribute to a 401(k), IRA or charity to get a tax deduction, but each of those things take more out of your spendable income than they reduce this year's income tax. For itemized deductions to be worthwhile, you first have to exceed your standard deduction, so for most of us, it won't do much good. Unless you are in the top tax bracket, you have to spend four dollars or more on mortgage interest to save one dollar in taxes. While that is better than nothing, it's not good enough to justify spending more on your mortgage just to get the tax break. Tax-efficient investing using low-turnover mutual funds can make a difference by deferring realized gains, but again, for most people, income taxes, property taxes, and payroll taxes far exceed capital gains taxes. Some people buy expensive annuity products to gain the advantage of tax deferral, not realizing that the investment company's excessive fees eat up more than they would have paid in taxes.

But last week I cut my tax bill for the cost of a gallon of gas and twenty pages of printer paper. I did it by asking for a cut.

In the spring, our annual property-tax appraisal from Tarrant Appraisal District indicated an increase of 5.5% in our property value compared to 2008. Property values in our area have not been decimated as brutally as they have in other parts of the country, particularly on the coasts. But neither have they been increasing. A recent survey indicates that property values in Dallas/Fort Worth are down about 0.2% in the past year. Homeowners in Phoenix, Miami, Chicago, or anywhere in California would be envious of so small a drop, as they lost 20% or more of their homes value. But still there is nothing to justify a 5.5% increase in our appraisal.

On May 30 I filed an appeal with the Tarrant Appraisal District. More than three months passed without a notice of my hearing date, but in mid-September I received a letter indicating that I would present my case to the Tarrant Appraisal Review Board on October 2. Also included were some instructions regarding how to prepare for the hearing and what to bring.

A realitor friend sent me a Comparitive Market Analysis for my house, listing recent sales in our area and houses currently on the market. I got a similar analysis back in 2005, showing twenty o thirty houses which had sold in our area in the past year. The analysis for 2009 indicated that three houses had sold between January 1 and September 1 of 2009. Several more sold in 2008. But a dozen houses within 4 blocks of our house had been on the market for six months or more without finding a buyer. One house just four doors down our street from us has been on the market for eleven months, with the price dropping repeatedly. Now the asking price per square foot is 70% of the appraised value of our house.

On the day of the hearing, I drove over to the Tarrant Appraisal Review Board office with five copies of all of my information, wondering if my efforts were futile. With the current economic situation, tax revenues are dropping like a rock and local governments are strapped for cash. Could I really expect them to cut my taxes in this environment? The information I had received from the county indicated that the review board was made up of impartial citizens, not county employees, and that they would fairly evaluate the true market value of my property, but I was still slightly skeptical.

I signed in at the front desk and took a seat in the waiting room. I dropped the suggested 25 cents into a can for a cup of coffee, which was not bad for the price. Good Morning America was showing on a large screen, but I read a few more pages from Atlas Shrugged until my name was called. I once waited three hours in the Social Security Administration waiting room, so thirty minutes seemed quick. The receptionist led me back to Review Board Room #7. Inside were three men, each roughly 75 years old, and a middle-aged woman at a computer terminal. I had five minutes to present my information, the county representative had five minutes to support the appraised value, I could offer a rebuttal, and the three men would decide on a fair value.

I went through my data, showing that most houses in my area were selling for a lower price per square foot, and that even at those prices, houses were not selling well. I used three of my five minutes. The county representative showed the same list of recent house sales, but also included some houses from the neighboring Crowley School District. In my rebuttal I pointed out that property values in Crowley were higher than in Fort Worth.

The chairman of the review board asked me what result I was hoping for. I indicated that I would like our appraisal to remain where it was in the previous year.

The board went to work, scanning the market data, punching numbers into their calculators, averaging, adjusting for square footage and build date, and comparing their results back and forth. I had no idea if their results were favorable for me or not. Finally they agreed on an average of their three results.

When the chairman announced their decision, I was shocked. They did not give me the 5.5% cut in property taxes I asked for, but instead a 12% cut. I was certain that I had not heard him correctly, so I asked him to repeat the number. He did, and I heard correctly, although I'm still a bit incredulous. I don't exactly like what it says about our property value, but I'm not planning to sell any time soon, and this will make a significant difference when our taxes come due in December.

Joe Biden says that paying more taxes is patriotic but I say that paying more than you have to is worse than just dumb, it is immoral. From a stewardship standpoint, paying taxes you don't owe is worse than playing the lottery, where are least you have some slim chance of winning something back. I encourage you to keep an eye on your appraisal each year, and if it seems out of line, do something about it.