So your home is due for a remodel. A kitchen or bathroom overhaul, or the addition of a new room, can substantially improve your quality of life, but what will it do to your finances? You’ve likely budgeted for the project itself, but, depending on the nature of the remodel, you might have to continue paying out in the form of increased property taxes. We asked professionals in the real estate and finance industries to weigh in on the implications of home remodels on property tax rates.
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Jennifer Harder is a Mortgage Broker (jenniferharder.ca) in Victoria BC. In 2016 she moved to Victoria, and she still absolutely love it. Every day she walks downtown, and it feels like a never-ending vacation.
Not all remodels or renovations will cause a tax increase, but if it falls under these categories, be prepared to see a rise:
- Adding square footage to your home – If you build an additional room or extend an existing room.
- Building anything significant on your property that wasn’t there before such as a pool or deck.
- Major remodels – Converting a basement or attic into a living space, for example. Anything that can be considered as repair, replacement or maintenance is tax neutral.
Your taxes will increase depending on how much value the remodel adds to your home based on construction costs and market conditions. This is determined by a home reassessment that is triggered by filing building permits.
Remodeling a home can result in higher value for the property. This is a benefit which cuts two ways:
First, it results in higher possible resale value, netting you a larger gain on the sale of the property.
Second, and to the detriment of your pocketbook, this new property value will inevitably feed through to the assessed value of your property, thereby increasing the taxable property value. However, home remodels aren’t usually done with the tax consequences in mind and often defer toward improvements in quality of life.
Riley Adams is a licensed CPA in the state of Louisiana working as a Senior Financial Analyst for a tech company in the San Francisco Bay Area. He has a personal finance blog dedicated to helping young professionals find financial independence at youngandtheinvested.com.
Sacha Ferrandi, Founder and Principal of Texas Hard Money and Source Capital Funding. Sacha is a finance and real estate expert with over 20 years of experience in the industry.
Often the purpose of a home remodel is to increase a property’s overall value. If substantial work is done to a home and the property value increases, there’s a chance your property taxes can also increase. Cosmetic upgrades or regular maintenance upgrades usually won’t affect your property taxes, but other upgrades such as a room addition can.
If the remodel requires a permit, chances are it will require a reassessment of your property value. Typically, your home’s value may be assessed every year or so, depending on where you currently reside. If your tax bill happens to increase, you can always dispute the proposed tax bill if you disagree in comparison to your property’s value.
Property taxes are issued by the county. The tax assessment procedures vary for each county and each state. How remodeling impacts property taxes will vary depending on the area.
Generally, the amount of taxes is based on the property’s “just market value” determined by the county appraiser. County appraisers typically do not enter the home – so they don’t factor in remodelings, such as updates to a kitchen or bathroom. The county appraisers do base their “just market value” on the size of the house. If you add square footage to the house as part of renovations that are properly permitted and recorded, property taxes will increase.
Earl White is a real estate agent, as well as co-founder of House Heroes LLC and House Heroes Realty. House Heroes Realty is a licensed real estate brokerage providing real estate agent services, and House Heroes LLC buys/sells properties.
Mike Robinson is a former mortgage broker and banker, former Civil Rights Non-Attorney Representative (Nationwide) and a Founder of Global Cannabinoid Research Center – Santa Barbara, CA
Many are unaware that when they obtain permits from the county for a remodeling job on their home, it raises a red flag for another assessment of the property value. This leads to a raise in property taxes that are based on the value of your property. Many remodels don’t change the structure of the property don’t require permits and won’t end up with these consequences. This would include remodeling a bathroom or kitchen, but not changing any electrical or plumbing. It’s not the remodeling that increases property taxes, it’s that new assessment of value the county will do after you’re done.
Your property taxes are dependent on the perceived value of your home. Making general renovations to your house, like replacing cabinets and flooring, won’t trigger a property tax increase. However, adding an addition to your home requires you to obtain permits and notify your local municipal.
Filing your permits notifies the city that they need to reevaluate the property value of your home. You can’t legally skip filing permits to avoid a property tax increase. The property tax assessors will come to view the property or just tack on an averaged value increase to your property, depending on how busy they are.
Shawn Breyer got bit by the real estate bug in 2014. Since then, he’s built a rental portfolio for his family and has experienced the joys and headaches of rental property ownership. After meeting with hundreds of other investors, he decided to build a real estate company to bridge the gap he saw – caring about the customer and not just the deal.
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