Counties calculate property taxes using two main factors: a home’s assessed value and the local mileage, or “mill” rate. A county appraiser usually determines the value of a property based on the price of similar homes recently sold. Once the value of the house is determined, this number is multiplied by the local mill rate.
A mill is $1 in tax per $1,000 of assessed property, and the mill rate is the amount of tax payable per dollar of assessed value. Local governments set their rate per mile based on the value of properties in the district, with the aim of providing enough tax to support local government expenditures.
In general, home improvement projects that increase home value will also result in property tax increases, but the following are almost guaranteed.
1. Improvements permanently attached to the property
Your neighbor installed an above-ground pool and you installed an in-ground pool. Your property taxes have gone up, but your neighbour’s haven’t. Why?
The answer lies in the fact that any improvement permanently attached to the ground is considered “real estate” and subject to property taxes. Anything not attached is considered “personal property” and is not taken into account when calculating property taxes.
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2. Home Additions
Increasing the living area of a home will almost certainly increase the value of the home and, therefore, increase property taxes. The living area of a house is one of the factors taken into consideration when assessing the value of the house. The increase in value of an addition varies depending on the value of surrounding properties and the quality of materials used in construction.
3. Some structural changes
Not every project that changes the structure of a home will result in increased property taxes. For example, removing a wall between two small bedrooms to create a larger bedroom is unlikely to increase property taxes because the value of the home is unlikely to increase.
However, building a wall in the center of a large room to create two bedrooms can increase property taxes, as real estate agents and appraisers typically add value for each bedroom in the home.
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4. Bridge additions
It’s on many homeowners’ wish lists – a terrace for relaxing and entertaining. It is also sure to raise property taxes. Outdoor recreational areas, whether patios or concrete decks, are considered when determining the value of a home.
But keep in mind that your property probably won’t increase in value as much as the money you spend. For example, according to Renovation magazine, you might pay $16,776 to add a wood deck to your home, but your home’s resale value might only increase by an average of $11,038. Tax appraisers look at actual increases in value, not just the amount you spent on renovations.
5. Space Conversions
Converting a garage to living space or closing off a patio to create more living space will likely increase the value of your home and, therefore, increase your property taxes. Like appraisers, tax appraisers assign a specific value to the total number of square feet of interior living space.
Every time you convert an existing outdoor space into living space, the taxes will likely increase because the living area of your home has increased.
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A new storage shed, workshop, or garage will likely increase your property taxes, but not as much as if you had completed the same amount of space relative to indoor living standards. Outbuildings are rated based on their size and quality of materials. As a general rule, the larger the structure, the more valuable it is, so the more you will be taxed.
The square footage of outbuildings is valued at a lower rate than indoor living space, but is still counted in the overall property value.
7. Finishing a basement
Many new homes sell with unfinished basements, allowing the new family room to expand in the future without having to add to the home. Finishing a basement is a cost-effective way to add living space, but your property taxes will go up when the county assessor finds out. However, living space in the basement is generally rated at a slightly lower value than living space above ground level.
RELATED: How Much Does It Cost To Finish A Basement?
But wait, how does the appraiser know about my renovation?
It’s no coincidence that you extended your home last year and this year your property tax bill has skyrocketed. Periodically, usually every one to five years, the local county assessor sends workers to determine the value of all properties.
They also have other ways to learn about upgrades, such as permit tracking. When you obtain a permit before tackling a home improvement project, the office issuing the permit sends this information to the county assessor, who uses the data to adjust the property value of your home.
How much tax do I still have to pay?
Trying to figure out how much more you’ll pay in property taxes for an upgrade to your home is a guessing game, but there are ways to make an educated guess.
First, you will need to estimate how much the upgrade will increase the value of your home. A local realtor or professional appraiser can help. Once you have established the estimate of the value of your house (with the additional improvement), consult the Property Tax Calculator from SmartAsset. Alternatively, call your local county assessor and ask how much more you will owe in property taxes.
Related: 10 Ways to Lower Your Property Taxes
Do you feel like you were unfairly taxed? Appeal the assessment.
If you think the county assessed your home too high after adding a pool or addition, you have the right to appeal their assessment. You will need to prove that the value of your home is not as high as they determined.
Obtain recent home sales records from a local real estate agent or hire an appraiser to give you a professional estimate of your home’s value. A professional appraisal will cost between $350 and $450, but if you live in a community with high property taxes, it might be worth lowering your property taxes.