Renovate Without Building Property Tax

September 16, 2008
Ed Rabinowitz

Physician's Money Digest, July15 2004, Volume 11, Issue 13

So, you're finally going ahead with that renovationproject you've talked about for years.Perhaps you're adding on an extra bathroom ormodernizing your kitchen. Or maybe you'vedecided to put in that fireplace you've always wanted.Before you do, you may want to check with your municipality'stax assessor to find out what your planned renovationwill do to your property tax bill. Otherwise, youcould be in for a very expensive surprise.

New York Times

Today, many municipalities are struggling to balancetheir budgets. What has helped in the balancing, accordingto an article in the , is a strong realestate market that has increased home values and propertytaxes alike. The US Census Bureau points out thatfor the year ending March 2003, property tax collectionsrose nearly 7.5% from the previous year.

Lots of Interest

Part of the reason for an increase in property taxesis that with interest rates low, many families are optingnot to move but to instead renovate or add-on totheir home. Under normal circumstances, local governmentsmight reassess property as frequently asevery year or as infrequently as every 10 years.Unfortunately, renovations will trigger an almostimmediate assessment. That's because most renovationsrequire a building permit, and whenever one isissued, a copy lands on the tax assessor's desk.

There are certain renovations that will almost certainlytrigger a reassessment, such as adding on aroom, garage, porch, or deck; installation of aluminumor vinyl siding; substantial modernization ofkitchens and bathrooms; or installing central air conditioningor fireplaces. However, rules can vary fromone municipality to another. Consider that inConcord, Calif, a permit is required for adding skylightsor sliding glass doors, while Tacoma, Wash,requires a permit for simply paneling a room. AndHallandale Beach, Fla, requires a permit for the installationof a satellite dish.

Permitted Renovations

If you're considering renovating without obtaining apermit and thus avoiding the reassessment, you maywant to rethink your strategy. If you're caught, therecould be expensive consequences. According to the Timesarticle, if you don't have the work approved in advance,your local building inspector could require you to teardown a new wall so they can inspect the plumbing.

Fortunately, not every home improvement projectrequires a permit, and not every renovation will triggera reassessment. Repair and maintenance work—including fixing a roof, replacing a hot water heater,repairing original siding, or replacing porches andsteps—is unlikely to increase the value of your home,enabling you to maintain your current tax rating.Many cosmetic improvements will enhance the lookof your home but not draw attention to your propertytax. Adding to or upgrading landscaping, includingshrubs, trees, and flowers, or painting the entire outsideof your home are usually tax-free activities.

Times

According to the article, there are also renovationprojects you can undertake that will not haveas significant an impact on property taxes. For example,if you're looking for additional living space, youmight want to consider converting your unfinishedbasement into an office or extra bedroom rather thanadding on a brand new room. Converting existingspace will almost always result in a smaller taxincrease than adding something brand new.

However, it is important to remember not to overrenovate.For example, adding a fourth bathroom toyour two-bedroom home may seem like a good idea,but it may be unimportant to a potential buyer.Perhaps more importantly, it will make a tax assessorsit up and take notice.

Times

Then again, some states offer incentives for homeownerswho renovate. The article notes that inthe state of Washington, homeowners can apply for aremodeling exemption that lets them avoid payingtaxes on certain home improvements for up to 3years.