RP: Taxes on renovations?

jshf

We are looking to buy a home, but are torn between getting a fixer and a move-in ready home.  One of the main questions we have is how are taxes going to be assessed on a reno.  The area we want to move to has high taxes and sometimes the home we are interested are out of budget because of the taxes.  But we are worried that if we buy a fixer, they will assess the house for a lot and then we will be in the same boat of high taxes.  If that's going to happen, I'd rather just buy a home that needs only a little repair.  Any advice would be appreciated!  I live in the Philadelphia area if that makes a difference.  TIA!

TarHeels&Rebels

Someone in your local area may be able to speak to this better, but I'll throw in my two cents...

To be taxed higher on improvements, a tax assessor would actually have to go IN your house...and that doesn't happen.  This fact surprises newbie homeowners, but think about it: have you ever heard anyone say they've got to clean the house because the tax assessor is coming by?  Normally, a homeowner is only taxed on what's visible from the street - an assessor has no idea whether your kitchen is top of the line or a burned out disaster. So if you put in a swimming pool, build an addition, etc, the assessor will make a guesstimate on that because he can see that from the street.

The part I can't speak to is how pulling permits for complex improvements may play into this.  Residential permits for renos are unheard of the places I've lived - local gov'ts just don't get that deep into people's business.  So I don't know how/whether a tax assessor up north goes to check and see who's pulled permits for what and raises the assessment based on those permits.

So bottom line: no, I don't believe you'll face any tax implications from new kitchens, new baths, etc.  The tax rates are set such that they assume people make appropriate upgrades over time.

Sue-n-Kevin

I agree, I think this is best answered by someone who lives in your area. These types of regulations are set locally.

I think it depends on the city/county/state and how they do the permits and then whether they follow up. City, towns and counties have had their tax bases significantly reduced because home values are going down. My assessable value on my home has gone down every year for the past 3, as have my taxes. Because of this their assessor staffing may have been reduced. However, I would be careful on whether you are counting on that fact to assume they WON'T perform a new assessment if you apply for a permit, because doing a renewed assessment on a newly upgraded home may be the way to INCREASE the taxes, and they may not be missing that opportunity. If the work you are doing requires a contractor, they will ALWAYS pull a permit because they have to by our local law.

When I've had big jobs done, like window replacement, new driveway, the contractor always shows up with a permit they stick to the window/door until they are done. However, I will say I have never had a tax assessor come through afterward and look at my entire home. That's not to say they didn't drive by and look at the improvements.

Also, if the work you are doing requires a contractor, and they are touching things that may need "code approval" like electric/gas/plumbing, again, it's possible the person assessing it may notify the town/city/county........or not. But they will have to have a city inspector come through to review the changes to make sure they "meet code" .

When I have purchased a home, or re-financed, the mortgage company insists on an appraisal. But that is for the mortgage company to make sure the value of the home is at least the price being financed. What I can't say is whether the assessment becomes part of any town/city/county paperwork transmittal.

Most cities/towns/counties have their tax assessment information online, at least the information as to how they are computed. May have assessment information and what triggers that. I'd recommend searching the internet or calling the city/town/county offices to get some general information questions answered before you buy.

You state the area you want to move to has high taxes and your home buying in that area has been swayed because of that. Remember, your tax rate is often based on the price of the homes around you, NOT just on your own. Cities/towns stay on top of the re-sale prices of homes in the area, and make blanket assessments based on that and apply them to all the houses in a given tract, subdivision or community. I live in an older suburb, so these reduced re-sale prices during the recent economic downturn is WHY my taxes have been going down. No one has reassessed my own personal home.

Higher property taxes in an area usually mean higher end city/town services, or better schools, or desirable elements in a geographic area. The city/town and county taxes fund improvements as well as ongoing services. If you've been shut out of considering buying a home in an area due to taxes, whether you renovate or not is not necessarily an indication of what you will ultumately pay, the values of the homes in the area will be. Sometimes it makes sense to have the smallest house on a street of mansions, because the PRICE is less........if the city has assessed simply that one home, the taxes may be quite a bit less. But as home prices go up, so will taxes.

Also, mortgage companies will fold in your taxes for an escrow account if you want to go that route. I do. They get the tax bills, based on the city's assessments, then fold that in with my home owner insurance in the escrow account. This has been nice while taxes have been going down, because my escrow account required minimum balance has been getting smaller and in some cases I've received an escrow account refund. Years ago when home prices were going up, my escrow account was short and my monthly payments went up.

Hope that long, involved description helps.

TootsieK

In our area, the tax assessor DOES come into the house, and the taxes are based on the improved value of the house after a renovation/remodeling.  It is a disincentive to improve -- or even paint the exterior!

In our previous area, the taxes were assessed on the price your paid for the home -- you could improve it all you wanted and your taxes wouldn't be affected.  They figured any improvements you made meant the other houses in the neighborhood would sell at higher prices and they would make their taxes there. 

So, as the others said, you really need to check on the situation in your city.  Call the city's tax assessment office and they can tell you.

katharine25

We bought a foreclosure and gutted the place, and were required to file permits given the extent of work we did. We live is an area that has one of the highest property tax rates in the country - taxes and assessment value are a big deal - our monthly tax bill is more than our actual mortgage. This is what we did.

 The first year, I was able to get the taxes down to purchase price.  I had to grieve though, because the initial assessment was just an appreciated (and overinflated) value of the previous purchase price from 2003 (the house we bought was 1/3 of that price - note that the mortgage however was based on the really high taxes). We then had to file building permits, and at that time they ask for an estimates cost of renovations. We  low balled this figure but made it reasonable. Base it as if you were putting in low end finishes and appliances and such, but it can't be so low that it couldn't be done for that cost.  Then the following year, once we had our Certificate of Occupancy, the tax assessment was based on the purchase price, plus the cost of renovations on file at the Building Department.

For us, the current assessed value is lower than what we would hope our home is worth on the market, but that's because of the upgrades and finishes we chose, but reasonable considering the size and location of the house.  I pray the assessor never comes inside, which he most likely never will, but he does have the right to.