New construction property taxes are calculated based on the land’s estimated value until the local government issues a certificate of occupancy for the house. After that, the property will be reassessed as a house for the following complete cycle of property tax billing.
Property tax is a tax on the value of real estate properties, particularly for new constructions. It involves assessing and calculating property taxes for newly built structures, considering specific considerations.
There are many advantages to owning a new construction home, but it is of great essence to be aware of the financial obligations that come with it.
Property taxes are one of the many factors to consider. Cities, counties, and school districts typically impose annual property taxes on the properties that are located inside their borders based on the value of the properties.
Property taxes are usually the main revenue source for public services such as schools, infrastructure, and emergency services.
This blog post comprehensively explains the intricacies of new construction property tax, their significance, the assessment process and how it applies to your new property, the factors that influence them, and the impact of new construction on property taxes.
ASSESSING NEW CONSTRUCTION PROPERTY TAX
Assessing new construction property tax involves determining the value of the newly constructed property, which is the basis for calculating the tax amount.
Tax assessors evaluate factors such as the size, location, materials used, and property’s unique features. This assessment determines the property’s market value, multiplied by the local tax rate, to determine the tax owed.
Different property types have various types of tax assessed on the land and its structures. When assessing new construction property tax, it is usually subject to many steps, including their property value, local tax assessments, and calculating the amount owed.
1. PROPERTY VALUE:
Property value can be determined through an appraisal method and market value.
Different appraisal methods can be used to assess property values, including the sales comparison approach, the cost approach, and the income approach.
Several factors are considered in these methods, including recent sales of comparable properties, construction costs, and the potential income that the property may generate.
The property’s market value refers to the estimated price the property would sell for in the current real estate market. The assessor uses the market value in determining property taxes.
2. LOCAL TAX ASSESSMENT
The local tax assessment process for new construction property tax is conducted by municipal or county assessors, who determine the taxable value of each property within their jurisdiction.
CALCULATING PROPERTY TAX
Calculating new construction property tax involves applying the appropriate tax rate to the taxable assessed value. This includes both the land and the buildings on it.
Assessors calculate that value using the mill levy—also called the millage tax, assessed property value, etc.
- Mill Rate and Tax Rate
A mill rate is the average tax rate per thousand dollars of assessed value used to calculate property taxes. Local taxing authorities set the tax rate.
- Taxable Assessment
Taxable assessment is calculated by multiplying the property’s assessed value by the assessment ratio, which represents the proportion of the property’s value subject to taxation.
- Deductions and Exemptions
There are certain deductions and exemptions that homeowners may be able to claim, reducing their taxable assessments and ultimately lowering their property taxes. Examples of these deductions and exemptions include homestead and deductions available to senior citizens and veterans.
FACTORS THAT AFFECT NEW CONSTRUCTION PROPERTY TAX
Many homeowners and buyers may be aware of their area’s property tax rates, but they may need to be made aware of the reasons that can cause it to rise. So, if you have to pay more in property taxes this year than you did the year before, one of the following causes, such as location, size, age, amenities, market conditions, and improvements made to the property, could be responsible.
New construction property tax tends to be higher in desirable locations. Home values are also based on the value of other homes in your community. So, if houses in your market are selling for more than the asking amount, it can increase the assessed value of your property.
- HOME IMPROVEMENTS AND ADDITIONS
Most homeowners believe that home renovations will raise the value of their home. However, they may need to be made aware that any expansions or remodel work that increases the value of their home will also raise their property tax.
These can be changes to the interior or exterior of the home, such as a room expansion, renovating a kitchen or bathroom, converting your basement or attic to living space, or pool construction.
Other additional features or enhancements, such as a garage or shed or the modification of a fence, may result in a higher assessed value. It would be best to seek assistance from a property tax consulting firm to see whether your planned upgrades are worth more than the potential tax liability.
- MARKET CONDITIONS
A revaluation is undertaken once every few years to bring all assessments in the town up to 100% of current market values. The State or the County Board of Taxation may require a revaluation, or the city may choose to perform one.
A house assessment only sometimes implies that your taxes will increase. For example, your neighborhood may have a lot of new constructions, which might help to offset any tax increases.
- FUNDING EDUCATIONAL INSTITUTIONS
Road construction, public schools, and libraries are just a few of the initiatives that are supported by property taxes. So you can anticipate an increase in your property tax, for instance, if an established educational institution in your area asks the local government for additional funding so it can continue functioning or make upgrades.
Additionally, the cost of hiring administrators, teachers, and other school employees, as well as maintaining the school’s grounds, may increase if a new school opens up in your neighborhood. A tax rise will follow as a result of this.
IMPORTANCE OF NEW CONSTRUCTION PROPERTY TAX
New construction property taxes are pivotal in funding local government services and public infrastructure. These taxes contribute to maintaining schools, roads, parks, emergency services, and more.
They are the lifeblood that sustains the development and progress of communities, ensuring that the places we live in are safe, functional, and enjoyable.
Properly managed property taxes from new construction also help boost property values and encourage responsible urban planning and growth.
HOW CAN HOMEOWNERS MITIGATE NEW CONSTRUCTION PROPERTY TAX INCREASES?
It is crucial to remember that while homeowners cannot challenge their new construction property tax rate, they can dispute their home’s assessed value. For example, if a recent assessment of your property results in a higher property tax payment, and you disagree with the numbers, you can submit an appeal with your city.
However, before filing an appeal, look into the cost of similar homes recently sold in the region. The value of homes in the area may have risen. Also, double-check that the assessment has accurate information regarding your home.
If the city overstates your house’s square footage or the number of bedrooms, your property tax will increase.
Also, remember to check the timeframe for filing a dispute which is usually 30 to 90 days. Taking advantage of deductions and exemptions and planning for possible tax increases can help homeowners mitigate property tax increases.
IMPACT OF NEW CONSTRUCTION ON PROPERTY TAXES
To plan effectively for their budgets, homeowners should fully understand the impact of new construction on property taxes beyond the initial purchase price.
- Assessing Improvements
The value of a new construction home is increased when it is built. When reassessing the property for taxation purposes, the assessors consider the value of the improvement.
As a result of additional features, modern amenities, and the overall quality of a new home, new-construction homes generally have a higher assessed value than vacant land or older properties.
Also, a newly constructed home may have a higher estimated value, resulting in higher property tax obligations. Homeowners should be prepared for increased tax bills.
- Tax Abatements and Exemptions
Some jurisdictions offer tax deductions or exemptions on new construction houses. These incentives are intended to encourage development and alleviate the immediate tax burden for homeowners. Investigating discounts or exemptions is essential to reduce new construction property taxes.
- Mitigating Property Tax Increases
Several strategies are available to homeowners who wish to mitigate property tax increases. This includes filing appeals if there are valid reasons to believe the assessed value is excessive and making the most of available deductions and exemptions.
Budgeting and planning for potential unexpected tax increases are also essential to avoid financial surprises.
Property taxes can be confusing. New construction homeowners must understand how property taxes are assessed to manage their finances efficiently.
Homeowners can confidently navigate the property tax landscape if they comprehend the assessment process, factors influencing assessments, and available strategies for mitigating tax increases.