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How to avoid home remodeling’s ugly surprise – higher property taxes

UPDATED: Fri., Oct. 9, 2020

Any changes that lift the value of your home can trigger a higher assessment, resulting in a higher property tax bill.  (Tribune News Service)
Any changes that lift the value of your home can trigger a higher assessment, resulting in a higher property tax bill. (Tribune News Service)
By Neal Templin Rate.com

If you upgrade your home, you may end up paying for the work again and again.

The first bill comes when you pay the remodeler; the next ones come through higher property taxes.

Any changes that lift the value of your home can trigger a higher assessment, resulting in a higher property tax bill. But the reality is that there are some improvements that almost always boost assessments, and others that rarely do.

Building permits are red flags. Any time you pull a permit, the local taxing entity is going to determine if a higher assessment is merited. The opposite is also true. If your job doesn’t require a building permit – like putting in new flooring – it’s unlikely to raise your assessment. Beyond that, the practical matter is that the assessor may not even be aware there is work under way in your house if no building permit was taken out.

Replacing or repairing things shouldn’t raise taxes. Go ahead and splurge on a new furnace, new roof or even new windows. Each will make your house more livable. And none of these repairs or upgrades, even ones that require building permits like the roof, normally affects your assessment since your house already had all these features before you replaced them. In the eyes of the assessor, the house isn’t really changing.

It’s possible to redo a kitchen without taking a property tax hit. Say you resurface the 50-year-old cabinets, yank out your tired Formica countertop, put in a new granite counter and replace your ancient stove with a new Viking range. It may feel like a new kitchen to you. But if none of these changes requires a building permit, you shouldn’t have to pay more taxes.

Now suppose you gut that same kitchen, move your appliances to new locations, and install new cabinets, counters and flooring. Your kitchen will need to be rewired and replumbed, generating a building permit and a higher assessment. And things that mightn’t have generated higher property taxes on their own, such as new counters and floors and windows, may be part of that higher valuation.

In New Jersey, for instance, property taxes can run 3% of assessed value per year. So if you spend $50,000 on a new kitchen, and your assessment rises that much, your property taxes will rise by $1,500 a year. Ten years out, you’ll have paid an extra $15,000 in taxes on top of your original $50,000 expense.

The dollar value on your building permit doesn’t necessarily determine the tax hit. The assessor is trying to determine the “market value contributions” of improvements, says George Librizzi, the assessor for five northern New Jersey towns. He says building permits can understate or overstate the value of the improvement. Likewise, different contractors charge different amounts for the same job. The assessor is looking at the work itself, and how much it has changed the value of your house.

Expanding your square footage will cost you. If you extend your family room into your backyard, or add another story, your property taxes are going up. The two biggest determinants of your property tax bill are the size of the lot and the size of the structure.

Your house doesn’t have to get bigger to lift property taxes. Houses with extra bathrooms sell for more. If you add a bathroom to your master bedroom, even if your square footage hasn’t gone up, your assessment is heading up. Central air makes a house worth more. If you add it to a house that previously only had room air conditioners, expect your property taxes to rise.

Not all add-ons spur extra taxes. In recent years, homeowners have spent thousands of dollars to install natural gas generators that kick in during power blackouts. It isn’t clear if these generators raise the value of the house. Librizzi, the New Jersey assessor, says he isn’t raising assessments when generators are installed.

Converting basements or attics is a gray area. It depends on how transformative the change is. For example, an unfinished basement typically has concrete floors, concrete block or stone walls, and exposed ceiling joists. If you put in a tile floor, you won’t need a building permit, and your assessment shouldn’t rise. If you put in sheetrock walls and new electrical outlets, you will need a permit, and your assessment is probably heading up.

“If you’re running electrical work or duct work into a basement, you’re crossing into that line, or coming close to crossing that line,” says Samuel Gilbertson, a Kalamazoo, Michigan, lawyer with Willis Law who works on property tax appeal cases.

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