Real Estate Tax Law: Evidence Is King
Many people decide to invest in real estate and being wealthy is not necessarily a requirement. When someone buys a house they are now considered a property owner, tax
payer, or even a small investor. Purchasing a home for most people is an investment in their future; and knowing the tax laws can make a significant difference in the return on investment, if it is to be sold at a later date.
Real estate taxes are a primary source of income for many local governments, yet they are a significant expense for property owners. Mortgage payments are what most people are required to pay monthly to their lender, in order to obtain a home without having to pay the purchase in full at the time of the transaction. The issue of property taxes though still remains and if not paid penalties may be imposed. For this reason, it is so important to understand the tax law and tax bill associated with the property.
A property tax bill is based on the assessed value of the real estate, a property tax rate, and any exemptions the tax payer qualifies for. The assessed value of a property is determined by the local taxing authority based on actual evidence. In many jurisdictions, the value is assessed on a yearly basis. Some municipalities have the assessed value equal the market value of the property; or utilize the equalization rate as there are differences in value between towns and it is acceptable to increase or decrease the rate depending upon market conditions.
Besides the assessed value of your real estate, your tax bill is based on what your real estate is classified as for example (agriculture, residential, apartment, commercial, office, vacant land, etc.) Some uses, such as buildings and land used for spiritual or religious purposes, may qualify for an exemption. Commercial and residential real estate may be taxed at various rates, based on the uses and what income can be generated. This means the multiplier should remain the same for all real estates in the same category like office buildings and retail malls would be. The category factors are separated into the property’s size, location, age, and construction type which can all affect the tax rate.
When a taxpayer wants to prepare evidence for their property’s value the best option would be an appraisal. An appraisal report can be utilized by a property owner for many reasons to estimate value like obtaining a mortgage, tax abatement, estate planning, and investing. It is best for a qualified real estate appraiser to be hired to complete this service. Real estate agents can help determine the sale price for a property; though an appraiser looks at other factors when evaluating a property which include:
1. The Market value - The appraiser will often research similar home sales in the area to determine a home's value. They will also monitor how foreclosures in the area are affecting values in the local market.
2. Improvements - Any improvements made to a property will have an impact on its value. Structures like homes, buildings, sheds, barns, pools are considered improvements. A fence if deemed on the property owner’s lot will also be considered as an improvement.
3. Any Negative features involved - Appraisers often look for issues with a property that may affect its value including poor accessibility, structural issues, cost of repairs or replacement if needed, and if located a less than desirable neighborhood.
It is easy to be overwhelmed by the complexities of real estate tax law and speaking with an expert helps clarify these issues. Allobar Strategies, a property tax consulting firm will assist tax payers through any questions they may have, and also help prevent any discrepancies on their tax bill.