Q: I am a relatively new landlord who owns four rental homes. Each of the homes is in the same neighborhood with the same number of bedrooms and bathrooms. The homes are very similar in all respects, except one big difference: property taxes.
I purchased the first two rental homes several years ago when the property values were much higher. The last two I purchased were after the real estate market crashed in our area. The property taxes for the first two rental homes are 50 percent more than the last two.
I have been able to hold onto all four properties, but it hasn’t been easy. Someone recently mentioned that I should appeal my property taxes, but I don’t really know much about it or how to do it. I know there is a correlation between the price I paid for the properties and the property taxes, but I don’t know if I fully understand how this works. Can you explain how property taxes are calculated and how they can be appealed?
A: Sure. You are not the only rental property investor who purchased at the height of the market and is paying more than he should for property taxes.
The general real estate or property tax on rental properties is made up of the taxes levied by your local municipality and various governmental agencies. These taxes are levied to support the services offered by the government and are called "ad valorem taxes." They vary in accordance with the value of the property. This is no different than the property taxes on your owner-occupied home.
Real estate is valued, or assessed, for real estate taxation purposes by governmental tax assessors. Your building and land are appraised separately, and most states have laws that require the property to be periodically reassessed or revalued. A tax rate is then applied to the assessed value to determine the actual tax billed to you as the property owner. The higher the assessed value of your property, the higher your property tax bill.
That is why the two first properties you bought for more money when the real estate market was booming are causing you to pay more in property taxes. You need to contact your local assessor and ask for a reassessment. You can find the assessor’s phone number online or look at your last tax bill. Some local jurisdictions are voluntarily reassessing properties, but most aren’t, as they often just don’t have the resources to reassess all of the properties in the area.
Tax appeals or protests are usually first handled administratively by mail or by dropping off your tax appeal form with supporting documents showing comparable properties that have recently sold for a lower value. You may be able to even get assistance from your local tax assessor in finding those recent comparable sales data, but in some areas you will have to talk to real estate agents who track these sales.
Some assessors have become so used to property tax appeals that they have dedicated staff to handle them and have simple procedures for you to follow. They may be able to even reach a mutual agreement with you in which both you and the assessor’s office sign a form agreeing to the new lower value. If your local assessor doesn’t offer the ability to stipulate to a lower value, then you may have to attend a hearing with the local property tax appeals board and present your evidence directly to them. If a dispute still exists, ultimately appeals may be taken to court in many states.
The process of appealing property taxes varies widely from one jurisdiction to another, and you may find it is very simple or that it can be time consuming and challenging for the novice. In the latter case, there are local property tax appeal professionals who will do all of the work for you. They may charge based on hourly fees or by taking a percentage of the savings they obtain for you in the form of a reduction in your property tax bill.
You need to understand that in many areas these reductions in your property taxes are not permanent and you may have to file each year. In some areas the value may automatically return to the previous higher value, or the assessor’s staff may perform a full reassessment in the following years and the value could go even higher than it was before. There are also cutoff dates so you need to check with your local assessor for the exact rules and policies.
In many areas there are also taxes for assessment districts or to make payments on local bond issues that were used to finance improvements to local facilities, such as schools or parks or fire and police. These amounts may or may not be based on the value of your property and can be charged at a set rate for each parcel of real estate owned in a certain geographic area. These parcel taxes are fixed and since they are not tied to the property value they cannot be appealed.