(I’m writing this to save off for later use; I’m currently entangled in a contentious thread on NextDoor which is likely to circle back to “you don’t pay property taxes on your two rental properties; the renters do!”).
I just wrote (well, my wife did) three big checks to Travis County Tax Appraiser’s office for property taxes for the year. One for the home we live in and two for the past two homes we lived in that we now rent out.
One of our two rental properties was vacant for 1/3 of the year this year (poorly timed lease renewal that didn’t renew).
Did we get a 1/3 discount on our property taxes because there was no renter during those 4 months? No. Well, you say, you had a tenant for 8 months so the renters still paid your property taxes, so there!
OK, leave that one alone for a minute. I’ve got an even better thought experiment.
My father-in-law is a difficult customer for contractors so ended up being his own GC, basically, for renovations of a condo unit they rent out. This unit was empty, without any tenants and obviously without any income, for several years. Yes, you heard me. Yes, we talked about it on numerous occasions.
Was he exempt from having to pay property taxes for those years? Of course not.
This thought experiment is all you should need to immediately discard the glib answer that “renters pay property taxes”. They don’t. And don’t lecture me about tax incidence; that whole discussion can be short-circuited by repeating the examples above. 100% of the tax in the second case was paid by the landlord-without-renters.
The right framing is this: Being a landlord is running a business. Property taxes are an expense that you have to account for with all your other expenses. It does not get ‘passed through to renters’; because, in general, rent is set by what the market will bear. (Past thought experiments that have failed to convince stupid people have pointed out that I raised rent in years my property tax went down and vice-versa). We don’t talk about how hamburger customers pay McDonald’s property taxes. (Some people might, but they’re stupid). We say McDonald’s needs to make enough income to cover their expenses, of which property taxes is a small part. And yes, you can talk about tax incidence in a theoretical sense, but it absolutely does not mean that if the figures tell you that the tax incidence is 80% on renters, that you can predict that a 10% rise in property taxes will mean your rent next year will go up 8%. It simply doesn’t work that way. In the long-run, those taxes will eventually be reflected in rent. But that’s not how people usually are thinking about property taxes; they’re actually believing “if you raise property taxes on my landlord by $1000, my rent will go up by $1000/year”; they vote based on that mistaken understanding; so it’s actively harmful to continue to support that framing.