Unlike those in most major cities, homeowners in Charleston, South Carolina do not face the same property tax increases when their neighborhoods gentrify, writes David Slade of the Charleston Post and Courier.
Generally, when gentrification occurs, property values rise, which can trigger property tax hikes for residents who began living in the neighborhood before it became trendy. This is no longer an issue in South Carolina, Slade says, because of changes made to the state’s property tax laws in recent years. Specifically, as long as the taxpayer remains the owner, the taxpayer’s property value for tax purposes will not rise just because surrounding properties have appreciated.
Further, according to Slade, the amount of the property tax cap is somewhat tied to how much the home has appreciated. While the maximum annual property tax increase is capped at 15 percent, that amount is generally reserved for properties with the strongest appreciation—a home that experiences little appreciation would likely be capped at a percentage much lower than 15 percent, and may experience no increase at all.
While this is an interesting solution, South Carolina also lifts the property tax cap, and resets the property’s value to market value when the owner sells the property. While this has been an attractive solution for many states, including California, Michigan and Oregon, because it allows long-term residents to stay in their homes, it has its drawbacks. For example, it discourages people from relocating in the same neighborhood or downsizing. When the difference between the property’s market value and capped value is significant, it creates the potential for a new owner (who may also be a long-time resident of the same neighborhood) to be struck with “tax lightning.”
Regardless, states should be encouraged to experiment with unique solutions to solve problems as they come—and be willing to tweak them if they don’t work as intended.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Should more cities offer targeted property tax relief aimed at helping long-term residents stay in their homes?
Sign up for a free trialof the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state property taxes.
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