As you upgrade your home, you may find yourself paying for work over and over again.
The first bill comes when you pay the redesigner; The next come through higher property taxes.
Any changes that increase the value of your home can trigger a higher assessment, leading to a higher property tax burden. However, the reality is that there are some improvements that almost always drive reviews and others that rarely do.
Building permits are red flags. Every time you get a permit, the local tax authority will determine if a higher assessment is deserved. The opposite is also true. If your job doesn’t require planning permission – like putting new flooring in – you’re unlikely to raise your assessment. In addition, it is handy that the appraiser may not even know that there is work going on in your home unless planning permission has been granted.
Replacing or repairing things shouldn’t impose taxes. Treat yourself to a new stove, a new roof or even new windows. Everyone will make your home more livable. And none of these repairs or upgrades, even those that require planning permission like the roof, will usually affect your assessment as your home already had all of these features before you replaced them. In the opinion of the appraiser, the house is not really changing.
It is possible to renovate a kitchen without incurring a property tax rate. Say you reappear in the 50 year old cabinets, pull out your tired Formica countertop, put in a new granite countertop, and replace your old oven with a new Viking range. It may feel like a new kitchen to you. If none of these changes require planning permission, you shouldn’t have to pay any additional taxes.
Now, let’s say you core out the same kitchen, relocate your appliances, and install new cabinets, counters, and floors. Your kitchen will need to be rewired and remodeled to get planning permission and a higher rating. And things that alone may not have generated higher property taxes, like new counters, floors, and windows, could be part of that higher valuation.
For example, in New Jersey, property taxes can be 3% of the estimated value per year. So if you’re spending $ 50,000 on a new kitchen and your valuation goes up that much, your property taxes will go up $ 1,500 a year. Ten years later, on top of your original $ 50,000 spend, you paid an additional $ 15,000 in taxes.
The dollar value on your building permit does not necessarily determine the tax hit. The appraiser tries to determine the “market value contributions” of improvements, says George Librizzi, the appraiser for five cities in northern New Jersey. He says building permits can underestimate or overestimate the value of improvement. Likewise, different contractors charge different amounts for the same order. The appraiser looks at the work itself and how much it has changed the value of your home.
It will cost you to expand your space. As you expand your family room into your garden or add another story, your property taxes go up. The two biggest determinants of your property tax bill are the size of the property and the size of the structure.
Your home doesn’t have to get bigger to raise property taxes. Homes with extra bathrooms sell for more. Adding a bathroom to your master bedroom even if your square footage hasn’t increased will increase your rating. Central air makes a house more valuable. If you add it to a home that previously only had room air conditioners, expect your property taxes to rise.
Not all add-ons incur additional taxes. In the past few years, homeowners have spent thousands of dollars installing natural gas generators to use during power outages. It’s not clear if these generators add value to the home. Librizzi, the New Jersey assessor, says he doesn’t do assessments with generators installed.
The conversion of 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 blocks or stone walls, and exposed ceiling joists. If you’re laying a tiled floor, you don’t need planning permission and your assessment shouldn’t go up. If you’re putting in sheetrock walls and new electrical outlets, you’ll need a permit, and your assessment is likely to be moving forward.
“If you’re doing electrical or ductwork in a basement, cross or approach that line,” says Samuel Gilbertson, a Kalisazoo, Michigan attorney at Willis Law who works on property tax appeal cases.