Renovations could build bigger property tax bills
This year many homeowners will be enjoying improvements such as more spacious, updated kitchens and new bathrooms.
“The remodeling market is bouncing back … as homeowners continue to spend significant time in their home and are adopting it for work, school, and leisure,” says Chris Herbert of Harvard’s Joint Center for Housing Studies.
Besides better spaces to enjoy, owners usually also enjoy a boost in their home’s price. All good, except a higher value eventually results in a higher property tax bill.
Local custom
Exactly how and when your tax assessor will levy a new bill reflecting renovation varies by locale, notes Renee Bergmann, a Westmont, N.J., real estate attorney.
The practice in New Jersey — many states and locales have similar procedures — is that when a remodel is complete, an assessor will either walk through the addition or ask an owner questions and take measurements of the added square footage. The tax on the enhanced value is calculated, and the additional assessment is prorated and added to the remaining months of the existing annual bill.
In the next formal tax cycle, the new annual tax bill will incorporate the improvement value boost.
Fair comparisons
How renovated homes compare to the values of similar homes in the area determines the new tax. The condition of the project — like whether there are high-end finishes, how much additional square footage was added and if new rooms are created — are all considered. For instance, a 1,000-square-foot home with one bathroom that upgraded to 1,200 square feet with two bathrooms would be valued against homes with those features.
Figuring the tab
Get an appraiser or a real estate agent to gauge the after-improvement value, Bergmann notes. “Many agents do this type of market analysis for free, but I think you’ll get a better analysis by offering payment,” she adds.
And you can consult your local assessor’s office for its procedures on evaluating the renovation, she concludes.