Are Property Taxes Considered Unrealized Gains in North Carolina?

Question from Jay, Are Property Taxes Considered Unrealized Gains in North Carolina?

Answer from AI:

What Property Taxes Are

Property taxes are levied by state, county, and municipal governments on the assessed value of real property (land and any buildings or improvements). The tax bill you receive each year is based on that assessed value multiplied by the local tax rate. The purpose is to fund services such as schools, roads, police, and fire protection.

Are They a Tax on Unrealized Gains?

• Unrealized gain means the increase in an asset’s market value that you have not yet realized by selling it.
• Property taxes are not a tax on the gain itself; they are a tax on the current value of the property as determined by the assessor.
• Because the assessed value usually reflects market appreciation, the tax may increase when the property’s market value rises—even though you haven’t sold the property. In that sense, the tax can feel like a charge on an unrealized gain, but legally it is a tax on value, not on gain.

Legal Basis in North Carolina

Statutory Authority

North Carolina’s property‑tax system is authorized by the North Carolina General Statutes, primarily Chapter 105, Article 5. The statutes give counties and municipalities the power to:

1. Assess real property at its fair market value (or a value determined by a statutory formula).
2. Impose a tax based on that assessed value at rates set by the local governing body.

Constitutional Considerations

The U.S. Supreme Court has upheld property taxes as constitutional so long as they are based on value, not on a transaction. Cases such as Kelo v. City of New London (though about eminent domain) reaffirm that taxation of property value is permissible. No North Carolina case has struck down the standard property‑tax scheme as an illegal tax on unrealized gains.

Practical Effect

Because the tax is tied to assessed value, a homeowner whose property appreciates will see a higher tax bill even if the appreciation is “unrealized.” This is a normal feature of the system, not a separate “gain tax.”

Key Takeaways

• Property taxes are levied on assessed value, not directly on the increase in value (unrealized gain).
• The tax may rise as market values rise, which can feel like a tax on appreciation, but the legal basis is value‑based taxation.
• In North Carolina, the authority to assess and tax property is found in NC Gen. Stat. §§ 105‑5‑1 et seq. and is widely applied by counties and municipalities.
• The system is constitutional and has been upheld by courts as a legitimate exercise of taxing power.

Where to Find the Law

• North Carolina General Statutes, Chapter 105, Article 5 – the primary statutory framework for property taxation.
• North Carolina Department of Revenue – Property Tax Information (official site) provides guidance on assessment methods and tax rates.

When to Seek Professional Help

While this overview explains the general principles, individual situations can involve nuances—such as assessment disputes, exemptions, or special tax districts. If you have specific concerns about how your property’s assessed value was determined or whether you qualify for any exemptions, it is advisable to consult a licensed attorney or a qualified tax professional familiar with North Carolina property‑tax law.