You may be familiar with income tax refunds, and they are a good source of some quick cash. But have you ever thought about reducing the amount of your investment property tax bill?
Using data from the U.S Census Bureau, 2018 American Community Survey, the Tax Foundation looked at property taxes as a percentage of the property value and found some stark differences.
They state that New Jersey and Illinois have the highest average property tax rates, with 2.21% and 2.05%, respectively. Hawaii and Alabama have the lowest tax rates, at 0.30% and 0.40%.
Because taxes are based on the market value of houses in your area, an incorrect property valuation may sometimes result in you over or underpaying.
The National Taxpayers Union has found that 60% of homes are overvalued in terms of property tax. Of this 60%, less than 5% appeal these taxes. And then of this 5%, the majority of homeowners and investors win their claim, even if only partially.
So, are you willing to take your chances? Not everyone can contest their tax bill on a whim, so make sure to see if you qualify for an appeal.
When to Appeal Your Property Taxes
Once you receive your tax assessment, you only have 30-120 days to send your appeal application. Make sure to send it via certified mail, or even better, hand-deliver it and get it stamped.
There are three basic arguments you can use, so you need to make sure you are legible.
Errors in Description
The assessor may have made a mistake when describing your property. They may have miscounted the square footage or the number of bedrooms. It’s quick and easy to check all the facilities are described correctly.
If you find an error, gather supporting documentation and write down all the errors. You can send this to your county office or go and make a face-to-face argument.
Inflated Market Value
You may have recently bought a home or investment property for an amount less than the assessed value. If the assessment is inflated, you’re in luck! You are highly likely to win your appeal.
Reduce your property taxes by sending a letter or making a phone call to your local government offices.
Poor Property Comparisons
Assessors put a value on your home based on comparisons with properties in your area. You may feel that the properties used do not accurately compare with yours.
They may be bigger or more modern, so this is one time you want to downplay your house’s features. The percentage difference in the properties will determine whether you have a good case.
If you fit into any of these three categories, you have a chance to successfully appeal your tax bill.
Check Your Property Tax Card
You can request your property tax card at your local assessor’s office. Confirm your property’s description, which includes details such as lot size, square footage, room sizes, and types of fixtures.
It will also describe any improvements or renovations. This is the simplest way to correct any issues with your property taxes. If there is an error, ask the assessor to correct them or reevaluate the home.
Avoid Home Improvements
Home improvement projects generally improve living conditions and at the same time increase the value of the property. This is always an advantage for real estate investors, but it will increase your tax bills.
Overall, this may seem like a good idea, but if you want to reduce your property taxes, limit any major renovations.
Check Your Neighbors’ Property Value
If you can convince the assessor that the value of the house is too high, you can lower the property taxes. One way to do this is by checking neighboring home values.
You can usually find this information online or among the public records at the town hall.
If for example your neighbor has four bedrooms but pays lower property taxes than you, but you have two bedrooms, it is worth looking into the cause of the discrepancy.
If there is a huge difference in property values, you have the opportunity to ask for a reassessment of the value of the home.
Have an Independent Appraiser Make a Valuation
You may disagree with the value given by the tax assessor, so it might be worth hiring an independent real estate appraiser.
They can conduct market research, and if they determine a lower valuation of the house, you can probably have the assessed value reduced.
Ask for a Reassessment of the Property Value
If you feel the assessed value is overestimated, you can lower property taxes by appealing the assessment. Start the appeal process at a county level, then move to the state level if necessary.
The tax office will send a tax assessor to do another walkthrough of the property. Make sure to participate so you can know what they are taking into account.
You also have a chance to point out features of the property that they may have missed.
Find Out if You Qualify for Homestead Exemptions or Discounts
All tax policies have exemptions, and this also applies to investors who qualify. Many states offer discounts or exemptions to veterans, senior citizens, and people with disabilities.
You may also qualify for a homestead exemption if the property is used for agricultural purposes or is your primary residence.
Some states offer other less common property tax relief programs to people who volunteer at local fire departments, who are widows and widowers, or who provide a home for grandparents.
Ask your assessor or visit their office to gather information about the local tax laws for the types of discounts available.
Install Renewable Energy Systems
Investing in green improvements for the house can help reduce your property tax assessment and make the investment more lucrative.
Upgrades, such as the installation of geothermal pumps, solar heaters, and biomass heaters, can get you a homestead exemption and lower the tax bills.
Some states offer residential renewable energy tax credit for using solar water heating and solar-electric systems.
The solar water heaters must be certified by the SRCC, and at least half of the energy used to heat water in your home must be from these solar water heaters.
You can research your state’s policies and incentives regarding tax breaks for renewable energy or ask if your local tax office can provide details.
File an Appeal of Your Tax Bill
This is the final step an investor can take during the process to lower their property taxes. If you are unable to get a new property assessment, you can appeal your property tax bill at your local tax office.
You will need to pay legal fees, but this could be beneficial in the long run if you win and the tax rate is reduced. Prepare details and photos of the home, as well as updated tax information.
A board will review your tax appeal application and decide whether or not to lower your taxes.
Property Tax Savings Are an Ideal Way to Reduce Expenses
There are few individuals who would not like some extra money. Using these steps, you can lower your property tax rate and make investing cheaper.
As a real estate investor, if you can reduce expenses for potential buyers, this will improve your chances of closing a profitable sale.
For real estate investors or property sellers, having information about property taxes can help seal a deal and give your business an extra boost.
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