What is the Real Cost of Buying a House and Car?


Tax rates differ for citizens in Virginia, depending on where one lives. In addition, a local government may choose to spend collected tax money differently than another local government in the Commonwealth. In this activity, students simulate the purchase of a house and car and calculate the taxes on both based on the tax rate of their local government. Through this activity, students gain a better understanding of how and why their local government affects the costs of typical purchases, and what it does with the tax money collected.


Activity 1

Before beginning the activity, teachers will need to record on 5 x 7 index cards the different levels of income for middle class America. Each index card will increase in $1000 increments.Information for the index cards is available on Handout #1: Middle Class Income in the United States. In addition, teachers need to collect new and existing home sales magazines, car sales magazines and/or classified ads from newspapers. You will need a classroom set.

As students enter the classroom, have them select one of the prepared index cards indicating how much money they will earn in a year.

After selecting an index card, have students complete Handout #2: How Much Do I Have to Spend? After completing this handout, students will know how much they have to spend on a house and a car.

Activity 2

Students will be looking for a house and a car they can afford based on their monthly income. They can use newspapers, new and existing homes sales magazines, car sales magazines, and/or the Internet.

After the students choose their house and car, they need to complete Handout #3: Applying for a House and Car Loan.

Activity 3

After students have selected a house and completed the application, they need to complete Handout #4: Taxes We Pay.

To help students complete Handout #4, distribute copies of Handout #5: Tax Rates. Teachers can make this handout specific to their surrounding counties and cities.

If a student cannot afford the monthly payments for their house and car, they need to find another house or car they can afford based on their income.

Students will now see how much of their income is paid in federal, state, and local taxes by completing Handout #6: The Big Picture.

Group Discussion

  1. Why do local governments tax?
  2. What is the largest tax revenue for local governments in Virginia?
  3. How much did your house payment increase as a result of the real estate tax?
  4. Do you continue to pay real estate tax after your house is paid off?
  5. What is a progressive tax?
  6. What do local governments use their tax money for?
  7. Why do towns have to pay a town tax and a county tax?
  8. What facilities do towns usually share with counties and cities?
  9. Why are tax rates different from local government to local government?
  10. Who determines the tax rate for a local government?

Background Information

A state government can levy taxes as it chooses. The state legislature decides what taxes the State will levy, and at what rates. It also decides what taxes a local government can levy.

The largest revenue tax for states is the sales tax; 45 out of 50 states charge a general sales tax and all 50 states charge a selective sales tax on gasoline, alcoholic beverages, and cigarettes. The second largest revenue tax for state governments is income tax; 43 out of 50 states levy an individual income tax.

The largest revenue tax for local governments is the property tax. There are two types of property tax: 1) real estate tax; such as land, buildings, and improvements that go with the property and 2) personal property tax on items such as cars, trucks, boats, etc.

The largest expenditure for state governments is education, which represents one-third of a state’s budget. The second largest expenditure is public welfare. States take an active role in promoting the health and welfare of their residents.

Local governments also have expenditures. Primary and secondary education is largely the responsibility of local governments and consumes a large portion of the budget. The second largest expenditure for local governments is police and fire protection.


This activity should give students a better understanding of the state and local taxes they pay. You cannot buy a house or car in a particular county or city and not be able to pay the taxes. Living outside the large city in a rural county may help someone have a bigger house or a more expensive car because the taxes will not be as high. Students should also have a better understanding that a large amount of their pay check is used to pay taxes.


For more advanced students, you can use the websites for purchasing a home and car and determine how much interest they pay on each of their loans. You could discuss why banks charge interest, who determines the interest rate, what makes the rate go up and down. Also, you could calculate how much more interest you pay on a house or car with a longer term as compared to a shorter term and a higher payment.

Resources for this activity: