How to contain Property Tax with extensive remodeling

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Bunty
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How to contain Property Tax with extensive remodeling

Post by Bunty »

Hi All,

One of my friends in the Bay Area, CA recently remodeled their home. It was 3BR - 2Bath and they added about 700-800sq ft to the existing 1400sq home. The new home is two-story, about 2100 sq ft, 5BR and 2Bath with new kitchen, baths, etc. He paid about $500K for all this work.

Before remodeling, his assessed value was about $800K ($550K Land and $250K improvements).

The city reassessed his new home at $2M ($550K for Land and $1450K for improvements) - basically a huge jump from prior assessment. Basically, when he got his permits - it was determined that about 85% of the home is going to be new. This is when the foundation, base flooring, etc. were not touched.

Questions

1. What is something that can be done to bring the assessed value to more realistic ($550K for Land + $500 for improvements) - $1050K.
2. If one was to take on a remodeling project then what can be done to contain the property tax increase? e.g. Work with City/Architect at the time of permits to ensure that they are determining what percent of the home will be remodeled, do it in phases, highlight what parts of the old house is being reused, etc.

Any other tips.

Best
muddgirl
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Re: How to contain Property Tax with extensive remodeling

Post by muddgirl »

His county has a dispute process (I don't know which county or I'd provide a link). It may be worth bringing in a special lawyer who is familiar with the process.

In my neighborhood in the bay area, 2million+ for a 5br 2ba is a reasonable assessment. It's likely the value of his property was previously under-valued due to the cap on how much assessed values can increase per year.
adamthesmythe
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Re: How to contain Property Tax with extensive remodeling

Post by adamthesmythe »

What muddgirl said.

Every locality has (different) rules for assessments. The best you can do is to make sure they are followed. If they have assessed correctly according to their rules then the homeowner is out of luck.
lucky_tech_guy
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Re: How to contain Property Tax with extensive remodeling

Post by lucky_tech_guy »

If you're not adding on, don't get a permit.
RetiredCSProf
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Re: How to contain Property Tax with extensive remodeling

Post by RetiredCSProf »

I had a major remodel to my home in SoCal, without adding square footage. No change in my property taxes, although I did get permits for the work.
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ResearchMed
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Re: How to contain Property Tax with extensive remodeling

Post by ResearchMed »

lucky_tech_guy wrote: Sun May 02, 2021 8:02 pm If you're not adding on, don't get a permit.
When a permit is needed may differ by jurisdiction.

Here, we absolutely need permits for some interior renovations, such a renovating a bathroom.
A building inspector will show up at the end (and earlier, too, often) to double check it was all done as described and to code.
No "addition" is involved in cases like new bathrooms, kitchens, etc.
I personally don't know exactly when the permits are needed.

RM
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Cycle
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Re: How to contain Property Tax with extensive remodeling

Post by Cycle »

Around here (Minneapolis) it's based on comps. If you want to contest you have to show recent como sales to justify the discount you are asking for.

My understanding is they will occasionally raise your assessed value even higher bc usually the comps the cheapskate provides are not equivalent and the assessor can easily find appropriate comps, which are sometimes higher
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Soon2BXProgrammer
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Re: How to contain Property Tax with extensive remodeling

Post by Soon2BXProgrammer »

ResearchMed wrote: Sun May 02, 2021 8:36 pm
lucky_tech_guy wrote: Sun May 02, 2021 8:02 pm If you're not adding on, don't get a permit.
When a permit is needed may differ by jurisdiction.

Here, we absolutely need permits for some interior renovations, such a renovating a bathroom.
A building inspector will show up at the end (and earlier, too, often) to double check it was all done as described and to code.
No "addition" is involved in cases like new bathrooms, kitchens, etc.
I personally don't know exactly when the permits are needed.

RM
When i read lucky_tech_guy's comment, i assumed he implied one should play dumb with respect to permits.
WhyNotUs
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Re: How to contain Property Tax with extensive remodeling

Post by WhyNotUs »

There is an Assessor record for the property, here they are called property cards, that you can check to confirm that the info is correct. The assessor will use comparable sales from a specific period of time and you can ask for the info on comparables. Where I live, they will send a spreadsheet.

A quick first check, is to ask what the owner thinks it would have sold for on the last day of the assessment period. Does it seem fair in that light?

It is not uncommon for an addition to be a chance for a property to get an assessment that is more in line with reality compared to the previous assessment. With such a significant change, someone may have actually looked at the house rather than just applying a multiplier used across an area to previous values.

People who buy and hold will be dreading their next assessment where I live once these current transactions are factored in. Crazy sales.
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ResearchMed
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Re: How to contain Property Tax with extensive remodeling

Post by ResearchMed »

Soon2BXProgrammer wrote: Sun May 02, 2021 8:39 pm
ResearchMed wrote: Sun May 02, 2021 8:36 pm
lucky_tech_guy wrote: Sun May 02, 2021 8:02 pm If you're not adding on, don't get a permit.
When a permit is needed may differ by jurisdiction.

Here, we absolutely need permits for some interior renovations, such a renovating a bathroom.
A building inspector will show up at the end (and earlier, too, often) to double check it was all done as described and to code.
No "addition" is involved in cases like new bathrooms, kitchens, etc.
I personally don't know exactly when the permits are needed.

RM
When i read lucky_tech_guy's comment, i assumed he implied one should play dumb with respect to permits.
At least around here, not only might the homeowner have some problems if it turns out they should have gotten permit and didn't, but there might be even more serious consequences for the contractor.
A good contractor typically won't fool around with this.

ETA: We also tend to have an opportunity to welcome someone from the town who stops by to see the interior of the house, approximately every 10 years, to keep up to date on tax assessment, etc - but I'm sure they'd also notice if there were suddenly an extra bathroom, although not necessarily an updated one (?).
How carefully they track what's 'inside'... who knows.

RM
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phxjcc
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Re: How to contain Property Tax with extensive remodeling

Post by phxjcc »

RetiredCSProf wrote: Sun May 02, 2021 8:10 pm I had a major remodel to my home in SoCal, without adding square footage. No change in my property taxes, although I did get permits for the work.
Ditto.

The formula should be:

Previous dwelling: assessment gets bumped a max of 2%, plus
newly added Sq footage at current market sales comp rates x tax rate.

Document this and send to assessor.
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Re: How to contain Property Tax with extensive remodeling

Post by LadyGeek »

For the record, discussions of dishonest behavior or bypassing the law is totally unacceptable.

The appropriate way to handle permits has been discussed.
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ponyboy
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Re: How to contain Property Tax with extensive remodeling

Post by ponyboy »

We always do the work ourselves and have never pulled a permit for anything. Then again, we're down in the woods and no one can see our house. Im not even sure what a permit is needed for in terms of renovations, plumbing, electrical? We did an entire house renovation and not a single permit was acquired.

As a matter of fact, we went from a 3 bedroom to a 2 bedroom, converted one room to an office. Maybe I should let someone know as that probably lowered the value of our property. Of course, if we ever sell, we'll build out the closet and make it a 3rd bedroom again.
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snackdog
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Re: How to contain Property Tax with extensive remodeling

Post by snackdog »

In many areas contractors are required by law to comply with the permitting process. They can lose their license for infractions. If your local jurisdictions determines work has occurred without a permit they may take enforcement action including judicial orders and a lien on the property contingent on removal/undoing of all unpermitted work. Permits protect everyone (owner, seller, buyer, regulator, neighbors) from later unwanted consequences.
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Re: How to contain Property Tax with extensive remodeling

Post by Jack FFR1846 »

Sounds like this is related to the California screwy property tax system that doesn't allow increases in existing homes but new buyers/builders get hosed and pay huge taxes. I would not be surprised, since California has never seen a tax it doesn't like, that they consider anything a permit touched to be "new" and thus given the higher tax.

So, how to avoid? Don't do any work on the house. Or move to virtually any other state where everyone pays the same tax rate, aka, their fair share.
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Atilla
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Re: How to contain Property Tax with extensive remodeling

Post by Atilla »

A builder I know is remodeling his house and purposely is not closing out the building permit so the work is never "finalized" and subject to reassessment until he is ready to sell the place.
carolinaman
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Re: How to contain Property Tax with extensive remodeling

Post by carolinaman »

Cycle wrote: Sun May 02, 2021 8:38 pm Around here (Minneapolis) it's based on comps. If you want to contest you have to show recent como sales to justify the discount you are asking for.

My understanding is they will occasionally raise your assessed value even higher bc usually the comps the cheapskate provides are not equivalent and the assessor can easily find appropriate comps, which are sometimes higher
NC is also based primarily on comps. Valuations and Revaluations are done by computers which are based upon comps and no assessor ever looked at your property in person. Unless you can present different comps you probably will not be successful. Insisting upon an assessor looking at your property in person probably will not help but is an option.
muddgirl
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Re: How to contain Property Tax with extensive remodeling

Post by muddgirl »

phxjcc wrote: Sun May 02, 2021 9:17 pm Ditto.

The formula should be:

Previous dwelling: assessment gets bumped a max of 2%, plus
newly added Sq footage at current market sales comp rates x tax rate.

Document this and send to assessor.
I'm guessing the problem in OP's friend's case is that at the same time they did the addition, they remodeled the existing kitchen & bathroom, so that is also being counted as new square footage "Any physical alteration of any improvement, or a portion thereof, to a “like-new” condition, or to extend its economic life..."
Wannaretireearly
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Re: How to contain Property Tax with extensive remodeling

Post by Wannaretireearly »

Sounds city dependent. We did a big remodel. Contractor gave us good advice that the onus to review the house and come up with a new assessment was on the city. This helped us, as the city never came out to inspect in person and eventually used the $ amount on the permit as the increase. Ymmv
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bwalling
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Re: How to contain Property Tax with extensive remodeling

Post by bwalling »

Bunty wrote: Sun May 02, 2021 4:10 pm 2. If one was to take on a remodeling project then what can be done to contain the property tax increase? e.g. Work with City/Architect at the time of permits to ensure that they are determining what percent of the home will be remodeled, do it in phases, highlight what parts of the old house is being reused, etc.
This is all locally driven. Your city/county/tax district has rules that govern this. Learn them and work within them. It's common to do so where I live.
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Bunty
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Re: How to contain Property Tax with extensive remodeling

Post by Bunty »

ponyboy wrote: Mon May 03, 2021 6:49 am We always do the work ourselves and have never pulled a permit for anything. Then again, we're down in the woods and no one can see our house. Im not even sure what a permit is needed for in terms of renovations, plumbing, electrical? We did an entire house renovation and not a single permit was acquired.

As a matter of fact, we went from a 3 bedroom to a 2 bedroom, converted one room to an office. Maybe I should let someone know as that probably lowered the value of our property. Of course, if we ever sell, we'll build out the closet and make it a 3rd bedroom again.
The purpose of this discussion was not to do anything that is not through permits. For some of us, building codes and permits are a good way to ensure that the house is built that is safe to live in.

What I learned so far is that if someone is looking to buy a house and then remodel, it is better to buy a house that already has the appropriate build area and then remodel it rather than buying a house and then adding square footage to it.
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Bunty
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Re: How to contain Property Tax with extensive remodeling

Post by Bunty »

muddgirl wrote: Mon May 03, 2021 8:55 am
phxjcc wrote: Sun May 02, 2021 9:17 pm Ditto.

The formula should be:

Previous dwelling: assessment gets bumped a max of 2%, plus
newly added Sq footage at current market sales comp rates x tax rate.

Document this and send to assessor.
I'm guessing the problem in OP's friend's case is that at the same time they did the addition, they remodeled the existing kitchen & bathroom, so that is also being counted as new square footage "Any physical alteration of any improvement, or a portion thereof, to a “like-new” condition, or to extend its economic life..."
That is correct. I am being told that in their case they added just 700 sq ft to existing 1400 sq ft home but it was still seen as 85% new and therefore it was counted as new square footage.
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Bunty
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Re: How to contain Property Tax with extensive remodeling

Post by Bunty »

Atilla wrote: Mon May 03, 2021 7:53 am A builder I know is remodeling his house and purposely is not closing out the building permit so the work is never "finalized" and subject to reassessment until he is ready to sell the place.
Basically, he is living in the house while remodeling is going on - that way he is not waiting on the final inspection before he moves back in.
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Max_Monetti
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Re: How to contain Property Tax with extensive remodeling

Post by Max_Monetti »

I did extensive rebuild/ remodel.
Made sure architect clearly identified new structure from existing (that remained in place) on plans. I didn’t want to get taxed as “new construction “.
That being said, my property tax went from $5600 to $11,700. I lost the discount i was receiving due to age of house & they added on some value to the property for new stuff I did.
The municipality I live in has an 8 year phase in on the new taxes after the job was done, so it eased the pain a little. You should ask your municipality if they offer a capital improvement phase in. I also kept track of ALL expenses to use against capital gains when I sell.
Good Luck
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Wannaretireearly
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Re: How to contain Property Tax with extensive remodeling

Post by Wannaretireearly »

Max_Monetti wrote: Mon May 03, 2021 2:23 pm I did extensive rebuild/ remodel.
Made sure architect clearly identified new structure from existing (that remained in place) on plans. I didn’t want to get taxed as “new construction “.
That being said, my property tax went from $5600 to $11,700. I lost the discount i was receiving due to age of house & they added on some value to the property for new stuff I did.
The municipality I live in has an 8 year phase in on the new taxes after the job was done, so it eased the pain a little. You should ask your municipality if they offer a capital improvement phase in. I also kept track of ALL expenses to use against capital gains when I sell.
Good Luck
Sucks. I never want to deal with the city again re: permits and costs. Between school assessment fees which cost a nice car amount & inspection hell, the only saving grace was only a $150k increase in prop value for adding 900 Sq ft second story to existing 1400 Sq ft single story.

Prop tax increases expected to be small are a significant factor to people doing major renovations. So, I feel the pain with the responses when they get surprised by their city/county!
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Atilla
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Re: How to contain Property Tax with extensive remodeling

Post by Atilla »

Bunty wrote: Mon May 03, 2021 2:00 pm
Atilla wrote: Mon May 03, 2021 7:53 am A builder I know is remodeling his house and purposely is not closing out the building permit so the work is never "finalized" and subject to reassessment until he is ready to sell the place.
Basically, he is living in the house while remodeling is going on - that way he is not waiting on the final inspection before he moves back in.
He sold the place and avoided reassessment for a couple years due to finishing the basement until after he moved out. Genius.
pshonore
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Re: How to contain Property Tax with extensive remodeling

Post by pshonore »

Like politics, all assessments are local. I recently put on an addition which increased square footage by about 30%. But my assessment only by up about 20% (considering the structure only). There are economies of scale in construction. If you build a 1500 sq foot house the assessor may use a figure of $150 sq foot, a 2000 sq foot would cost perhaps $140 sq foot and 1000 sq foot house may came in at $170 per sq ft, giving values of $225K, 280K and 170K respectively. Of course "quality" is another factor to increase or decrease those values and so is depreciation depending on age of the structure. Other items like fireplaces, central air, # of bathrooms, basement garages and many other factors also go into the equation. Its a complex calculation.
I am being told that in their case they added just 700 sq ft to existing 1400 sq ft home but it was still seen as 85% new and therefore it was counted as new square footage.
I don't understand that statement - sounds like a 2100 sq ft house to me. New square footage counts the same as existing.

I've also found our local assessor to be very cooperative when explaining the process. In CT all assessments are done in the 169 separate towns so we have 169 assessors. Yes, quite inefficient just like the 169 local school boards. In reality, there are probably a 1/2 dozen assessment firms that each town picks from, who gather the raw data, run their software and present the results. And almost all the data is online so its easy to compare your assessment to your neighbors.
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celia
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Re: How to contain Property Tax with extensive remodeling

Post by celia »

muddgirl wrote: Mon May 03, 2021 8:55 am
phxjcc wrote: Sun May 02, 2021 9:17 pm Ditto.

The formula should be:

Previous dwelling: assessment gets bumped a max of 2%, plus
newly added Sq footage at current market sales comp rates x tax rate.

Document this and send to assessor.
I'm guessing the problem in OP's friend's case is that at the same time they did the addition, they remodeled the existing kitchen & bathroom, so that is also being counted as new square footage "Any physical alteration of any improvement, or a portion thereof, to a “like-new” condition, or to extend its economic life..."
Ditto on the calculation. The original square footage probably shouldn't be re-appraised, but it might depend like what was done. Re-tiling a shower/tub, for example, shouldn't be re-appraised higher, but adding a jacuzzi bathtub would, because that's adding more functionality. The friend should do some homework and review the permit that was submitted. Then have the property re-assessed correctly. Also make sure the assessor knows the ownership didn't change.
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Re: How to contain Property Tax with extensive remodeling

Post by index2max »

It's your private property until suddenly, it's not :?
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celia
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Re: How to contain Property Tax with extensive remodeling

Post by celia »

Bunty wrote: Sun May 02, 2021 4:10 pm One of my friends in the Bay Area, CA recently remodeled their home. It was 3BR - 2Bath and they added about 700-800sq ft to the existing 1400sq home. The new home is two-story, about 2100 sq ft, 5BR and 2Bath with new kitchen, baths, etc. He paid about $500K for all this work.

Before remodeling, his assessed value was about $800K ($550K Land and $250K improvements).

The city reassessed his new home at $2M ($550K for Land and $1450K for improvements) - basically a huge jump from prior assessment. Basically, when he got his permits - it was determined that about 85% of the home is going to be new. This is when the foundation, base flooring, etc. were not touched.

Questions

1. What is something that can be done to bring the assessed value to more realistic ($550K for Land + $500 for improvements) - $1050K.
Your calculation is not right. His assessed value should be closer to ($550K Land and $250K improvements) [original] + $500K [new] = $1300K. The original part should maintain it's original assessment/taxes, except for anything that is "upgraded" while only the new footage will get today's property tax rate.
2. If one was to take on a remodeling project then what can be done to contain the property tax increase? e.g. Work with City/Architect at the time of permits to ensure that they are determining what percent of the home will be remodeled, do it in phases, highlight what parts of the old house is being reused, etc.
The less that changes, the less your taxes would go up. You are allowed to fix things that are broken but new square footage or upgraded attachments to the house will cause the reassessment of just the new areas.
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