Some home improvements can increase your property taxes. It’s important to know which ones do, which ones don’t and how you can manage the difference.
Because property taxes are calculated based on the value of your home, any renovations that cause your home’s appraised value to rise can increase your property taxes. However, not all improvements will lead to a higher property tax bill, so it’s important to know what you're doing and how it might impact your wallet before getting started on any major renovation projects.
When property tax appraisers determine the value of your home, they will consider a variety of factors, including the size, age, condition, and features of the property. Therefore, making home improvements that substantially increase your home’s market value can cause your tax bill to skyrocket.
Maintenance or Capital Improvements?
Generally, more minor improvements like installing new carpet in a few rooms or replacing outdated fixtures won’t impact your property taxes because they are considered maintenance rather than capital improvement. But extensive renovations, additions, and improvements that increase the home’s livable space can result in a higher property tax bill.
Some of the most common improvements that can lead to a property tax hike include:
However, it’s important to remember that property appraisals are more of an art than a science. Because the value of a home is based on its fair market value, many factors can come into play during an appraisal. Improvements may be only part of the picture.
For example, adding a new bedroom to a one-bedroom home will likely increase its market value more than adding an identical new bedroom to a four-bedroom home, even if the renovations cost the homeowners precisely the same amount of money. Why? Because going from one bedroom to two will drastically increase a home’s marketability, whereas the added appeal created by transitioning from a four-bedroom to a five-bedroom home is much less significant. If your contemplated improvements don’t increase the home’s value, they shoiuld not affect your property taxes.
An appraisal district in each county is required by law to revalue all the county once every three years. Many homes are appraised annually, especially in high growth areas like Travis, Harris, Dallas, Denton, Collin and Tarrant counties.
The time it takes for your property taxes to reflect a new home improvement often depends on the type of renovation. Any changes that can be seen from the outside of your home or require a permit will likely be noticed by the appraisal district shortly after they are completed.
Should I Grant Access to an Appraiser?
Your property’s appraisal value is mostly based on comparable property sales, external observations, aerial photography, and permit records. Only rarely will the appraisal district request permission to tour your home’s interior and you don’t need to grant access. But should you?
If you don’t grant an appraiser access and if the appraiser has reason to believe access would result in a higher value then the district could – and sometimes will -- raise your value on the theory that if it is high you can bring it down by protest. It’s the “stuck pig” theory of assessment. In most cases where the district requests access it’s a value judgment call by the homeowner, balancing what’s inside against what the district knows or suspects.
Building Permits – Yes or No?
A building permit is a red flag to the appraisal district, notifying the appraisal staff that a revaluation may be appropriate. Thus, if you can complete your renovations without the necessity of taking out a permit – perhaps in smaller increments – you might keep your property taxes under control. However, you must comply with local ordinances so it would be wise to consult knowledgeable counsel before starting a remodel project without a permit.
Because districts evaluate properties on a mass appraisal basis, Texas homeowners are often overcharged on their property taxes based on appraisal values above market. Unfortunately, many people don’t know they have the right to challenge their home appraisal cost by filing a property tax protest with their local appraisal district. Typically, only about one third of single family homes are subject to a value protest each year. The other two thirds support the reductions obtained by those who protest successfully by paying more than their fair share.
Value Above Market or Inequality? Or Both?
Appraisal districts are required to value properties at market. When you file a property tax protest, you or your legal representative will be permitted to offer evidence that shows your home’s appraisal value is higher than market. This is a protest under Value Above Market. For example, the appraisal may be based on invalid information, such as the wrong age or square footage, or the incorrect number of bathrooms or bedrooms. Your home’s appraisal may also be inflated if the appraiser erroneously believed it contained value-adding features such as a fireplace or pool. These are considered Condition arguments.
But the most common method of contesting market value is by Value Above Market. Access to recent sales through Multiple Listing Service and the ability to adjust those sales for comparability to your property are critical. Adjustments are the gold standard for comparability but each appraisal district has different criteria for adjusting comparable sales to the property being valued. It helps to know what your district’s adjustment standards are and how they affect your property.
Inequality of Appraisal is a second strategy for challenging a property’s market value and it applies especially to higher value properties. If your home was appraised at a higher value than comparable homes in the market area – typically but not always your subdivision. – you can argue Inequality of Appraisal.
Inequality Trumps Market.
The Inequality argument is heard after market has been determined and is applied to the market value determined. This means that if you obtain a reduction under Value Above Market and can also show inequality based on comparable assessments, you can win a taxable value below market. At Property Tax Protest we often win reductions under Inequality where the property is fairly assessed by market comparisons.
Inequality applies especially to higher value properties because it is calculated as a percentage reduction in a property’s market value. Many high value properties which cannot support a reduction under comparable sales analysis will obtain significant reductions under Inequality of Appraisal. Unfortunately, most homeowner protests overlook the Inequality strategy or fail to argue it properly.
If your property taxes have increased due to an inflated appraisal value, you can file a property tax protest to challenge your value. Because appraisal districts can base appraisals on inaccurate or incomplete information about your home, filing a property tax protest is often the only way to ensure you don’t pay more than your fair share of taxes. At Property Tax Protest, we have over 20 years of experience helping people challenge their home’s appraisal values and winning. Sign up with us today at no risk: there’s no upfront cost and if there’s no reduction there’s no fee.
Don’t pay more than your fair share of property taxes