If you are like me, you may have opened your latest Property Tax Assessment in the mail only to receive a big surprise.
by Scott Jacobs
Although your taxable value will increase annually by an Inflation Rate Multiplier (IRM), it’s the assessed value, that this year, will show the result of the current real estate market hype.
In my case, the taxable value of my home for 2022 rose by the IRM marker of 3.3% year-over-year (YOY). For 2021, YOY was 1.4%. Plan for this trend to continue into 2023. Therefore, you will see higher tax bills this year, and likely even a higher percentage in 2023 if inflation continues on its current trajectory.
But it’s the assessed valuation of my home – which is “adjusted to market value” by my taxing authority – that increased by a whopping 20.1% compared to the 1.6% increase in 2021.
So how does the Property Tax Assessment increase affect me, or doesn’t it?
It doesn’t affect your taxes as long as you own your home. That’s the good news. But upon the sale of your home, the taxable value will be “uncapped” and moved up to match the assessed value to the new buyer. And the longer you have lived in your home, the larger the spread between taxable and assessed will be, and the more shocking of a tax hike to any future buyer will be. This reset by the taxing authorities is a windfall of cash with every home sale under its authority.
If the change in my home's Assessed Value doesn’t currently affect me, then why should I pay any attention to it?
Because, the assessed value is set at 50% of the current market value of your home, as determined by your taxing authority, you can multiply the assessed value by 2X, to know what they believe your home to be conservatively valued at, under current market conditions.
In my example above they are saying the value of my home rose by 20.1% YOY. Great!. Most major stock indexes increased about this amount last year. So, to have a large asset like my home perform like more risky market instruments is indeed great. And yes, my taxes are only going up 3.3%, thankfully. But if I decide to sell, the new homeowners will have quite an increase in their tax bill compared to what I’m currently paying.
Why even write about (boring) Property Tax Assessment?
Well, in most years we don’t see these type of increases unless you go back to the 1980’s.
Home owners that bought in 2019 and before will have only seen “more normal” property assessment valuations that usually run just above the IRM (as shown in my example above). But with the housing shortage, and everything to do with the supply chain challenges, labor shortages, and personal debt reduction, it’s hard to meet current housing demand. Meaning, you can currently sell your home at a premium price, but you still need somewhere else to go and live.
So if you want to know what a conservative increase in home evaluations are in your community, check your property tax assessment letter and see if it reflects the huge increase in home value that I've seen in mine.
If you would like help in understanding the market value of your home above the conservative value placed by your taxing authority I would enjoy meeting with you!