There are few things in life that are certain. Taxes are one of them. And if you’re a homeowner, you can be certain you’ll pay property taxes for as long as you live in the home. However, the amount you’ll pay is a little less definite, because it changes each year. While you can’t control your property taxes too much, there are ways to mitigate increases.
Read on to learn why things like neighborhood and home improvements can cause property taxes to go up and what home improvements increase property taxes, specifically.
Why Do Property Taxes Increase?
Property tax assessment calculates property taxes based on the value of the home and the city’s tax rate, per state and local laws. Based on the factors used in calculation, certain things can lead to increased taxes. These include:
Home improvements: The most common reasons for an increase in property taxes are home improvements that increase the value of your home. These can be interior or exterior improvements, like a room addition, bathroom conversion or pool installation. And since you decide what improvements to make to your home, this cause is one you have the most control over.
Neighborhood improvements: Making a neighborhood a more desirable place to live can drive up home values, which, in turn, increase property taxes. For example, new schools can attract families, while new businesses may lure young professionals looking for new job opportunities.
Government policies: Property taxes help fund schools, police and fire departments, libraries, public parks, streets and other initiatives. When more funds are needed to maintain these services, property taxes increase to help cover the budgets. Typically, there are limits on how much a city or county can increase taxes and voter approval is often required for increases over the limit.
Home Improvements That Increase Property Taxes
As we mentioned above, some home improvements can increase home value and, thus, property taxes. If you’re considering working on your home this year, but want to try to avoid property tax increases, you may want to reconsider making the following improvements.
Simple landscaping improvements and touchups to improve the curb appeal of your home won’t be cause for a property tax hike. We’re talking about bigger, more dramatic changes that add value to the home, including:
- Installing a pool
- Constructing a new garage
- Building a new patio or deck
- Enclosing an existing patio or porch
- Building a guest or pool house
Since exterior improvements are on the outside of the home, they’re easily detected by assessors, who’ll be able to see them just by driving by or walking around the perimeter of the home.
There are many improvements you can make inside the home that will increase its value and your property taxes. These include:
- Finishing your basement
- Remodeling your bathroom
- Converting a half bath into a full
- Renovating your kitchen
- Adding more livable space to your home
- Renovating your attic
- Adding a home office
- Adding a four-seasons room
Interior improvements may take longer to be factored into the home value because assessments are typically conducted by drive-bys. However, these improvements will eventually reach the assessor, via methods such as building permits, neighbor reports and in-home assessments or inspections.
Are Home Improvements Worth The Tax Increase?
Whatever home improvement you choose, it’s going to cost some money to complete, in addition to costing you more in property taxes. Remember, though, it will also increase the value of your home. To determine whether home improvements are worth it, you’ll have to do a little work.
Calculating Return On Investment On Home Improvements
To figure out if improvements are worth it, compare the amount you plan to spend on the home improvement to the amount you expect the home value to increase. If your home improvement costs $8,000 and is expected to increase your home value by $10,000, your return would be $2,000. If your property taxes only increase by $600, it may be worth it because you are still up $1,400. However, if you’re planning on using all of your money on the project and don’t have the money to cover your tax increase, you may want to consider completing the project when you have enough money saved to do so.
If you aren’t sure how much your home renovation will cost or how much value it could add to your home, it may be good to speak to a contractor or real estate agent or review the annual cost vs. value analysis from Remodeling Magazine. This analysis compares average costs for certain projects with its estimated increase in home value.
If you’re looking for ways to help fund your project, look into certain grants and loans that help with home improvement projects. You may also want to see if a cash-out refinance can help with expenses.
Projects That Don't Affect Property Tax
Of course, there are home projects that don’t typically raise home value significantly enough to merit a tax increase. A few examples of these projects include:
- Replacing the carpet
- Installing new cabinets
- Installing new hardware
- Repainting rooms
- Replacing countertops
Other Factors That Increase Property Taxes
While you’re able to control property tax increases due to home improvements by choosing which projects to do, there are also uncontrollable factors that may lead to a property tax increase.
Increased value in surrounding homes can affect a homeowner's tax burden, such as:
- Increased home sales
- Improvement projects by neighbors
- New local amenities, like parks, hiking trails or retail and grocery stores
Local and state government rely on property taxes to help fund the maintenance and improvement of certain infrastructures and services, including:
- Water and sewer authorities
- Street services, like plowing
- Police and fire departments
If state funding is cut for these services or local tax revenue is cut from other sources, the local government may need to draw more money from property taxes.
For example, the COVID-19 pandemic has affected local and state economies, with small businesses and local retailers filing for bankruptcy or shuttering completely. To help make up for this loss in tax revenue, it’s likely property taxes may increase.
What To Do When Your Taxes Increase
When your taxes increase, the first thing to do is review your assessment letter and tax bill to make sure you understand the documents.
If you wish to appeal the assessment and contest the tax bill, you can. However, you’ll need evidence that your home was over-assessed. You can find this by finding comparable homes in your area and reviewing their assessments. Once you can prove your home was over-assessed, you can contact your local assessor’s office and discuss the assessment or request a formal review. The length of the review process depends on your location and could take months. Remember, you cannot get your tax rate lowered, just the assessed value of your home.
Another option is seeing if you qualify for certain property tax exemptions or credits, that may be based on your property type, age, disability or act of service.
To learn more about taxes, insurance and other costs of homeownership, check out our Learning Center.