As a investment property owner, the first line item and usually the biggest expense an owner has is the property tax on a building.
In this time of rising Inflation, making sure your properties have a fair value established can be a major benefit to the NOI of your investment.
Here are three ways you can keep that cost in check:
1. Check the property tax card to ensure it is accurate
While every taxing authority is tasked with providing the right information, mistakes do happen, and you want to make sure the information is correct.
- Oftentimes an assessor is not given access to the interior of a building, and must make educated decisions about the property. Making sure your unit count, acreage, construction, etc. is not overstated is a easy and productive way to make sure taxes are in line.
- If you find a mistake, contact your county assessment office, which establishes the property data, to correct the information and, correspondingly, the value.
2. Research Thy Neighbors
- The more uniform your property is the easier it will be to compare to another one that may have a lower assessment. This is particularly true for income properties that may have varying assessment based on income that is outdated, or much lower for one property than a comparable one nearby. Making sure your property is in fair competition to your neighbors is also an important data point on your tax assessment.
- Considering improvement to your property and don’t want to face higher taxes? Check to see if your property location qualifies for LERTA Tax credit program. Local Economic Revitalization Tax Assistance (LERTA) is a tax abatement program created by the Commonwealth of Pennsylvania in 1977 authorizing local taxing authorities to provide tax exemption. The purpose of the legislation is to incentivize redevelopment of aging or deteriorating properties. Each township or borough must decide to elect properties into the program. LERTA does require an application and approval of the graduated 10 year tax abatement for the property. Generally they are for properties that are commercial or mixed use in nature, but each township will set their own parameters.
3. If the assessment is an amount that is not in line with the common level ratio of your county, an appeal is the next step.
The Board of Assessment Appeals may use the common level ratio in your county to determine the assessment of a property if they establish a market value in a hearing decision.
Example: Market Value is $175,000 and common level ratio is .659
Multiply the market value by the ratio, $175,000 x .659 = $115,325
$115,325 is the assessment
- If you need to file an appeal, you will need to pay for a professional appraiser to assist you. They will need to be either a commercial appraiser for an 5+ unit, or a residential appraiser for 1-4 units.
- State law and the courts require that state-licensed Certified Pennsylvania Evaluators (CPE) consider the three approaches to value, whenever possible; namely, the Market Approach, the Cost Approach, and the Income Approach.
- With the income approach to valuation, there can be more variation due to the expected cap rate that the assessment is established at, so it is very important that you are prepared to review income and that you know the market cap rate for your product type over the recent several years.
NOTE: If there is talk of a county reassessment, Pennsylvania law requires taxing bodies to adjust their millage in the year after a reassessment. The estimated tax impact provided in your notice will be approximate and subject to the final adjustment to the millage rates.
Many investors have successfully transformed their taxes with an appeal, so make sure this is not overlooked in your asset management.
- Need tax record data or comparable information for an appeal? We are always happy to help with associated information.
