Proposition 2 1/2
When you buy a home, you should consider the total cost of the purchase, including the real estate taxes that will be levied and the effect of Proposition 2 1/2. While these taxes vary from city to city in Massachusetts, each city's ability to raise taxes for the community is limited by Proposition 2 1/2, which became law several decades ago. The knowledgeable real estate lawyers at Pulgini & Norton can advise home buyers in Boston on the impact of this law.The Effect of Proposition 2 1/2
Contrary to some people's understanding, Proposition 2 1/2 does not stop a city from increasing taxes on a single property by more than 2.5% in a fiscal year. Instead, Proposition 2 1/2 affects the amount of levy that is raised by a community as a whole.
A property tax levy is the revenue that the whole community can raise through the taxing of real and personal property. It is made up of taxes on residential real property, commercial real property, business-owned personal property, and industrial real property. Usually, a property tax levy is the largest source of a municipality's revenue, and it goes towards paying for public services, safety, and schools. While Proposition 2 1/2 does limit individual taxes, it does so only indirectly.
Proposition 2 1/2 limits real estate tax in two ways. First, it imposes a ceiling. Second, Proposition 2 1/2 limits levy increases. The community's levy limit is calculated by the Department of Revenue, and it is based on the prior year's levy limit, not the actual levy.
The ceiling of a levy is calculated as follows. A municipality like Boston is not allowed to collect more than 2.5% of the assessed total value of a community's real estate and personal property. The property that is being taxed is being taxed based on its fair market value or total full and fair cash value as determined by the community assessor. That means, for example, if the full and fair cash value of property is $100,000,000, the levy ceiling with be $100,000,000 multiplied by 2.5%, or $2,500,000.
A municipality generally can only increase its total property tax by 2.5% every fiscal year. There are special circumstances that may allow a municipality to increase taxes by more than 2.5%. For example, if a community grows significantly, such as when a new development of houses is built, the new property taxes can raise tax collections. In that case, Proposition 2 1/2 calculations will not include the new property taxes that were raised through growth. The purpose of allowing this flexibility is to recognize that any new development comes with added municipal costs, such as increased school enrollment or the need for additional safety measures.
Moreover, community members can vote for overrides or exclusions to the yearly increase. Overrides include overrides, debt exclusions, and capital outlay expenditure exclusions. An override can be accomplished by putting a question on the ballot and getting the approval of a simple majority of voters. This increase then becomes a base for future calculations.Seek Legal Representation for a Property Transaction in Boston
It is important to have the advice of an experienced attorney for a home purchase in Boston or the surrounding communities, since each municipality approaches Proposition 2 1/2 differently. These differences can affect the total value of your real estate over time. At Pulgini & Norton, we represent clients in many Massachusetts cities, including Andover, Hyde Park, and Malden. Call us at 781-843-2200 or contact us via our online form for a consultation.