Property Tax Post: New Year’s Home Improvement Resolutions May Mean Higher Property Bills

Home Improvement

As we close in on the end of 2015, many of us think about the things we plan to accomplish in the New Year. Some of us have fitness and nutrition goals, others plan vacations, and some homeowners dream of renovations like finishing a basement or adding that much needed extra bathroom. Especially if your situation is similar to mine, where extended family members commandeer your house for the holidays and there never seems to be enough room for the unexpected relative. Grappling over the decision to remodel is a pretty big chore when the cost of the remodel is not the only thing to consider. In many states, home improvements that finish spaces or increase the livable square footage of a home trigger property reassessment and may significantly raise property taxes.

Reassessments on home improvements vary by location and are different than maintenance or replacement of existing improvements, like new counter tops or cabinets. In San Diego, a reassessment occurs only when new construction adds value to the property. The San Diego county assessor website explains, “If you build a family room, only the value added of the new construction will be added to a current assessment.  The existing home will not be reassessed for tax purposes.”

In Snohomish County, Washington, physical improvements triggering reassessment include repairs to garages, carports, and patios, but not swimming pools, outbuildings, or fences. Here, the difference between the value of the property before the improvement and the value of the property after the improvement is exempt for three years, so long as the amount of the increase does not exceed 30 percent of the value of the dwelling prior to the improvement.

Florida voters approved a state constitutional amendment in 1992 to limit the increase in the assessed value of homestead-exempt property to 3 percent per year.  So, if a homeowner makes an addition or improvement like a swimming pool, the assessed value of the addition can increase no more than the 3 percent plus the value of the pool. Floridians have another incentive to do home improvement. Some counties may choose to limit the increase of assessed values that result from improvements added to property for the purpose of providing living quarters for one or more natural or adoptive grandparents or parent of the owner of the property. To qualify for this exclusion, the parent or grandparent must be at least 62 years old and the increase is limited to the lesser of 20 percent of the total assessed value of the property as improved, or the increase in the assessed value resulting from the improvements.

The rise of home improvement shows over the last few years have inspired many a homeowner to don their construction hats, strap on tool belts, and embark on home makeover projects. Knocking down a wall for an open concept kitchen or adding a deck is a great idea and will certainly add to the value of a home. But taxpayers shouldn’t underestimate the contribution to the property tax bill.

Continue the discussion on LinkedIn: What’s your favorite HGTV home improvement show- Fixer Upper, Property Brothers, Love it or List it? Or Flip or Flop?

For more information about state tax issues, sign up for a  free trial on Bloomberg BNA’s Premier State Tax Library.

By Cynthia N. Wells