Seven Popular Home Renovation Options That Will Increase Your Property Taxes
Although property taxes in the United States vary widely (Essex County, New Jersey has some of the highest, averaging $13,145; while West Virginia has some of the lowest, averaging just $989), if you own a home, you pay some property taxes, and if you renovate that home, your property taxes will likely go up .
This is because major improvements to your home will increase its value, and the value of your property is what your property taxes are based on. It may take a while for your local tax assessor to get to grips with your renovations, but at some point your property will be revalued and your taxes will increase accordingly, so it’s best to be prepared to take the hit.
Part of this preparation means knowing the types of renovation projects that will have the biggest impact on your tax bill. Tax rates and assessment procedures vary widely from place to place, so it’s impossible to say exactly what impact a particular project will have on your specific tax bill, but these seven renovations will likely increase your property taxes the most.
We are building an extension
Generally speaking, anything that increases the living space of your home will increase your property taxes. Property taxes are typically assessed through potential sales value, replacement value, or estimated rental value (sometimes all three), so having more living space obviously increases every aspect of your home’s value.
This includes other renovations that increase living space without the need for new construction, such as converting a garage into a bedroom or office, or dividing a bedroom into two (a home with three bedrooms, no matter how small, is often considered more valuable than a home with two). And some types of outbuildings, like a backyard shed, can also increase your tax bills, especially if they’re built on a foundation and connected to water, electric and sewer lines.
Adding a bathroom
As with bedrooms, more bathrooms usually mean your home is worth more, so adding one bath to your home will likely increase your tax bill. Simply upgrading existing bathrooms can also trigger a property tax hike, since many tax assessments are based on the number of fixtures in the bath to estimate the overall cost—thus, a two-piece half bath is valued less than a five-piece bathroom. Transforming that simple triple into a luxury spa bathroom could cost you in taxes, even if you didn’t actually add a new bathroom.
Installation of an underground pool
Even though pools are quite controversial in terms of home value – they can even lower your potential selling price because they are expensive to maintain, and not everyone is a fan of pools – they will still increase the value of your property because: a) they clearly improve your property, in the sense that they add something to your property that wasn’t there before (and they usually add some value ) and b) they are considered ” real property ” rather than personal property (and luxury items in addition), because they are tied to the house. (An above-ground pool will likely be considered personal property and will not affect your property taxes).
Adding a Patio or Deck
Adding a patio or deck to your outdoor space obviously improves that space, making it more enjoyable and useful. This doesn’t necessarily guarantee a higher property tax rate—different tax codes will have different rules regarding outdoor space, and the size and scope of your deck or patio (as well as the materials you use) will also matter. But in general, if your new outdoor space can be expected to increase the sales value of your home, it will also increase your property taxes.
Finishing your basement
If your current tax assessment is based on a home with a damp, dark basement filled with cobwebs and exposed plumbing, it shouldn’t be a shock that converting the space into a cozy entertaining area or guest suite will increase your property taxes. Since a finished basement typically provides a 70% ROI on the value of the home, if finishing your basement costs an average of $32,000 , the value of your home should increase by about $22,400, and your taxes will definitely increase accordingly.
General land improvements
The key concept in property taxes is “improvement.” Every home once started out as an empty plot of land. Someone came and improved it by clearing the lot, putting in sewer, water and power lines, laying a foundation and building a house there. All of these improvements have made the land more valuable, and this process continues when you renovate or expand the property.
However, this doesn’t just mean adding to and renovating the house itself – you can also improve the land in a variety of ways:
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Installing a fence in the yard
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Paving a dirt or gravel road
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Adding drainage or irrigation systems
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Landscaping and landscaping
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Adding outdoor lighting
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revaluation
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Installation of sidewalks
All of these projects improve property values, increase property values, and can trigger significant property tax increases.
Adding a fireplace
Installing a fireplace in your home makes it cozier, warmer, and also more valuable. Fireplaces are generally considered a luxury item (unless your home uses one for heating), which is one reason why homes with fireplaces sell for about 13% more than comparable homes. As a result, you can expect this additional cost to be reflected on your home’s next tax assessment.
Call before making any repairs.
If you’re considering any renovations, additions, or other improvements to your home, it can be very difficult to determine how or when it will affect your property taxes. And one rule is likely to be fair: If you get permits for the project (and you definitely should get permits for any work that requires local building codes), eventually your local tax office will learn about your projects and begin reassessing the value of your home for tax purposes.
The easiest way to get an idea of what the tax consequences will be is to call your local tax assessor’s office and ask before you do any work. They probably won’t be able to give you an exact number, but they can tell you whether you can expect your project to increase your tax bill and perhaps give you a general idea of what that increase might look like.