Making upgrades can increase the amount of living space you have available, make your house more suitable for your family’s needs, and raise your home’s value. Some improvements might also cause your property tax bills to jump. Keep that in mind when planning your renovation project.
How Property Taxes Are Calculated
The amount you pay in property taxes depends on your municipality’s tax rate, or mill rate, as well as the value of your home. Some home improvements will increase your property’s value, which will in turn lead to higher tax bills. The amount of the change will depend on the type of upgrades you make, the real estate market in your area, and how your local government assesses property taxes.
For many home improvement projects, a permit is required. When you or your contractor gets a permit, that information will be recorded and used to calculate your property taxes in the future.
Home Improvements That Might Lead to Higher Taxes
Rules differ from one jurisdiction to another, but projects that increase a home’s square footage or amount of living space or that raise a property’s value generally lead to higher tax bills. If you build an addition, that will increase the size of your house and raise its value, so you should expect your property taxes to rise accordingly.
In some cases, renovations that provide additional living space without increasing a home’s overall size can trigger a tax hike. For example, if you remodel your home’s interior to add another bedroom or bathroom, finish your basement, or turn your garage into a bedroom or an in-law apartment, that can lead to higher property taxes.
Adding an in-ground pool is another type of home improvement that often causes tax bills to increase. It’s an attractive feature that increases a home’s resale value and is permanently attached to the property. An above-ground pool, on the other hand, is unlikely to affect your tax bills since it’s not a permanent structure.
Building a deck or patio will probably lead to higher property taxes because those projects increase a home’s value. In some localities, building a shed will cause you to pay more in taxes.
How to Figure out How a Renovation Would Affect Your Tax Bills
A real estate agent or appraiser can estimate how much your planned renovation project would increase your home’s value. Once you have that information, you can contact your local tax assessor’s office to find out approximately how much your property taxes would rise.
That information might affect your decision-making process. If the upgrades you’re considering it would lead to a spike in your property taxes, but the changes wouldn’t significantly increase your home’s resale value or have a major impact on your quality of life, you might decide to scale back your plans.
