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How Your Home’s Value Affects Your Property Taxes

How Your Home’s Value Affects Your Property Taxes

A key misconception that property owners have is that the purchase price (or market appraisal value) of a real property dictates the assessed value for property tax purposes. In the current economy, with home values at an all-time-low, it is especially important to ascertain a property’s Tax Assessed Value (TAV). Although property taxes are managed by county-specific property appraisers, property is not assessed based on a county-wide or zip code-wide inclusion. Instead, the TAV for real property is determined using the “Sales Comparison Approach,” the “Cost Approach,” or the “Income Approach” for similar properties in the surrounding area. Some localities are now using a Computer Assisted Mass Appraisal (CAMA) System to assess property values. The CAMA system analyzes data collected from all three of the above approaches to determine an assessed real property value. The TAV of a real property, and hence the property taxes levied, may be affected (in varying time frames) by the following factors: Improvements or Depreciation (Cost Approach)

  • Swimming pools
  • Permanent structures ? adding or removing
  • Garages
  • Patios
  • Finished basements
  • Remodeling or “in-law” apartments
  • Age and depreciation
  • Declining cost of construction (materials/labor)
  • Increasing cost of construction (materials/labor)

Sales of Similar Properties in the Area (Sales Comparison Approach)

  • Foreclosures
  • Short sales
  • Traditional home sales

Natural Disasters (Cost Approach)

  • Fire
  • Earthquake
  • Sinkhole
  • Wind
  • Flooding

Structural Damage (Cost Approach)

  • Vandalism
  • Infestation/Termites

Increase or Decrease in Rental/Leasing Trends (Income Approach) In instances where a natural disaster or structural damage causes market value to depreciate significantly, it is necessary that the property be reassessed for Tax Assessed Value (TAV). Depending on where the property is located, the current downturn in the market may not immediately affect the TAV where the “Sales Comparison Approach” is utilized. This is because some areas use a 3-year trend, which may just now be starting to negatively impact TAVs. Additionally, if permanent improvements have been made to the real property without adhering to the required permitting procedures, these improvements will not be reflected in the TAV (using the Cost Approach). Non-residential homeowners are ineligible for Homestead and other property tax exemptions, and in many cases, they are not eligible for tax assessment caps that many resident homeowners may enjoy. In summation, the “market appraisal value” for property sales analysis and the “tax assessed value” for property taxation are not to be confused. However, one can affect the other over time.


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