Here’s What Happens to Your Property Taxes When You Renovate Your Home

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Property taxes and home values go hand in hand. Read on to see how renovations could lead to a higher property tax bill. 

When you buy a home, there are numerous expenses you take on. In addition to a mortgage loan, you also have to bear the cost of homeowners insurance, upkeep, and repairs.

And then there are property taxes to think about. Your property tax bill is generally calculated by taking your home’s assessed value and multiplying it by your local tax rate.

The more updated your home is, the higher your property tax bill is likely to be. So that’s something you’ll need to consider when planning for renovations.

How much will renovating really cost you?

When you improve your home, there’s a cost involved, whether it’s $1,000 for new carpeting or $40,000 for a new kitchen. But in addition to the cost of your renovation itself, you have to anticipate an added cost — a higher property tax bill.

Now in some cases, a minor home renovation won’t change your property tax bill. Swapping grungy carpets for newer ones likely won’t have an impact on your home’s assessed value, so a project like that shouldn’t lead to a higher bill.

But a major renovation could drive your property taxes upward in a very big way. This especially holds true if you’re increasing your usable living space — for example, finishing an unfinished basement or putting on an addition.

Bob Villa says you can expect your property tax bill to increase for upgrades that are permanently attached to your home, like an inground pool. Also, adding a bedroom or bathroom could raise your property tax bill, because even though you’re not necessarily adding square footage to your home, you’re carving out more useful spaces.

How will your city or town know to raise your property taxes after a renovation?

Most homes get assessed on a preset schedule. It could be that assessments are done once a year, once every other year, or once every three years.

When the time comes for your home to get an assessment, someone will show up to your property to physically examine your space. From there, they’ll be able to compare what they see to your home’s last assessment to figure out if anything has changed.

Let’s say that as of your home’s last assessment, your basement was unfinished. If it’s since been finished, that’s something your assessor will note, and that will go into determining your property’s assessed value.

Also, your assessor will likely review permit records in the course of assessing your home. If they see that you were issued a permit for a new inground pool, that alone will clue them in to the fact that your home has a new feature that’s apt to change its value.

Don’t get caught by surprise

All told, renovating a home can be expensive. But don’t forget to account for the added cost that might ensue in the form of a higher property tax bill.

In some circumstances, your town may be able to tell you what sort of increase you’re likely looking at based on the permit application you submit, which should outline the scope of the work. That won’t always be the case, but it’s worth asking.

If your town tells you that adding a deck will likely increase your property tax bill by $400 a year, that at least gives you a number to work with. Ultimately, though, you’ll need to wait for your home’s next assessment to see what the impact really is.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More