COVID-19 has impacted nearly every area of our lives since the beginning of the pandemic. And it could have a big impact on your property taxes in 2020 and beyond.
Here's what you can expect and how to prepare for the impact.
A Quick Property Tax Overview
The majority of your property tax bill comes from ad valorem taxes (which is Latin for according to value). This means your property taxes are largely based on the value of your property. If the value increases, your ad valorem property taxes increase, and if the value decreases, so do your ad valorem property taxes.
As a side note, your property tax bill isn’t all ad valorem. You’ll also see direct assessment charges for local services such as schools, fire and police, as well as bonded indebtedness charges for voter-approved improvements like new infrastructure.
COVID-19 probably hasn’t impacted your direct assessment or bonded indebtedness charges, but if it has affected the value of your property, you’ll see a change in your property tax bill.
While you can check your tax bills to see tax amounts for the real estate you own, you can also check on properties you don’t own as long as you have the right tools. Smart real estate software like PropStream can give you an insider’s look at property tax information, even for properties that aren’t on the market. Don’t forget to check the property tax information on any deals you’re considering acquiring.
Be aware, though, that the impact of COVID-19 on property taxes may vary depending on the type of property you have.
Residential Property Tax Implications From COVID-19
Generally speaking, the American housing market has weathered the pandemic and subsequent recession surprisingly well. We saw some hesitation in the early days of the outbreak, but low interest rates and low inventory have continued to drive buyer demand. So in most markets, homes have held their value or even increased in value in 2020. This means property taxes for residential investments in most markets will remain flat or even increase a bit.
Homes in the suburbs are most likely to see a higher property tax bill. This is because increased buyer demand for homes outside of major cities has driven property values up in bedroom communities.
As long as home values increase, expect your property tax bills to increase as well. In most markets, there is currently no indication of a steep decline on the horizon.
Commercial Property Tax Implications From COVID-19
Unlike residential real estate, which nearly always derives its value from comparable sales, commercial property is typically assessed using the income approach to value. As the income-producing capability decreases, the value decreases as well. And when the value decreases, the property tax bill should decrease accordingly.
Many commercial and industrial properties have taken a hit to income in 2020. Consider the increased vacancy at hotels, the decreased sales at restaurants and the many retailers who have been unable to pay rent during the pandemic. The value of these assets has decreased across much of the country, so owners of commercial properties may see a decrease in property taxes for 2020 and future years as we work to restore the economy to pre-pandemic levels.
If you believe your property taxes are too high, you may be able to lower your taxes by appealing your assessed value. It’s entirely possible that your local tax assessor has incorrectly overestimated your property’s value. By following our simple 5-step plan, you could get your property taxes lowered significantly. After all, in this economy, every penny counts.