Taxes and death, the only two things certain in life according to America’s founding father Benjamin Franklin.
When buying any piece of real estate or property, it is paramount that you know how much your tax obligation will be. A house may be cheaper in one city or state compared to the other, but more expensive in the long run.
Property taxes are one of the issues Americans have never agreed on. No one likes them, but they help balance state budgets around the country. Even the states that don’t officially have property tax end up compensating for that in some other way.
How are tiny homes taxed?
This depends on where you are. In the US, every state has its own rules relating to property taxes and other related taxes. There are clear guidelines as to what type of tiny houses are liable for what type of taxes.
To simplify, let’s assume that the tiny house in question sits on a permanent foundation.
In this case, you will be liable for a property tax in states that require it. The nation average property tax rate is 1.1% of the home value. Meaning for an average-priced tiny home worth $50,000, you should expect to pay about $550 annually.
If you live in California where the rate is 0.73%, you can expect to pay even lower at just $365 annually.
That said, even within individual states, the total property tax varies from place to place. That is because on top of the tax levied by the state, some local taxes may apply.
Using the example of California again, you can expect to pay additional local taxes like:
- District Levies for sidewalks, flood control, street lighting etc.
- Additional levies to run the city, water, community colleges etc.
- Parcel tax to fund K-12 public education.
The wealthiest neighborhoods like Beverly Hills see the highest taxes.
One more thing to note is that some states will tax your tiny house like a normal house, even if it does not sit on a permanent foundation. This happens if it is hooked up to public utilities like sewer and electric grid. On top of taxes, the house will be required to meet all health and safety codes, as well as the zoning regulations.
In summary, if a tiny house sits on a permanent foundation or is connected to public utilities, it is often taxed the same way as any other house. The rate varies from state to state, and in some cases from type to type of house.
How are mobile tiny homes taxed?
As mentioned, property taxes most often only apply to tiny houses on permanently foundations. If your house sits on wheels like an RV, or a trailer, you will be taxed differently.
Over 30 states in the US collect a ‘Personal Property Tax‘.
By definition: A personal property tax is a tax levied by state or local governments on certain types of assets owned by their residents. – Investopedia.
The collection of this tax uses a mishmash of formats across all states. Even within individual states, collection of some of it may be left to local authorities, which means everything differs everywhere.
Some states like New York only collect personal property tax on ‘real property’ like land and buildings, and leave other types of personal properties (like cars and machinery) untouched. Unless of course the owner sells them, at which point the state collects a sales tax.
In a state like North Carolina, personal property tax is levied on: ‘real property’, other personal property, and motor vehicles. In this state and others like it, your tiny house on wheels will likely fall under this category.
The only way you can be certain that you are liable for a personal property tax, or not, is by going through your state’s specific statutes.
When it comes to RVs there are tax deductions you can enjoy. RV is defined as a motor vehicle that has affixed ‘sleeping, cooking, and toilet facilities.’
An RV, for the purpose of taxes, can be regarded as your second home. If you took a mortgage for it, you qualify for a tax deduction on mortgage interest. The same might apply to you if you took a personal loan for it.
You might also qualify for a sales tax deduction. This is a one-time tax relief on the amount you spent purchasing the RV. It applies even if the motor-home was bought in cash.
You may also be eligible for a business tax deduction if you are using your mobile tiny home as a business or investment. For this, the IRS requires that more than 50% of the nights spent in the RV be for business, and you can’t stay in it for more than 30 days at a time. Proper records are required for this deduction to be considered.
Other than taxes, a mobile tiny home has other expenses that a permanent one does not. For instance, you will require registration, license plate and annual inspections. This is on top of the automotive insurance, which is mandatory in the US.
Lead photo courtesy of Politico Magazine.