Do your property taxes go up if you renovate? If you’re planning on making a few home improvements, here’s a guide to renovations and their impact on property taxes.
How renovations affect property taxes
Property taxes are determined by the value of your property, so when you decide to make significant upgrades or renovations, your taxes can increase after assessment.
Whenever you secure a building permit, a copy is sent to the tax assessor’s office, which will update your property tax bill accordingly. Whenever you secure a building permit for major renovations or construction (i.e. finishing the basement, adding a new room, adding square footage), property values will inevitably go up along with your taxes.
Keep in mind that property taxes can only be raised after your home undergoes formal reassessment. One of two events can trigger a reassessment: new construction or a change in ownership.
New construction refers to any renovations project that requires a building permit in your area. Your property taxes can go up depending on the specifics and the scale of the project. However, permits for repairs, maintenance, and replacements typically won’t trigger a reassessment.
Home sale or change in ownership can also trigger a reassessment and an increase in property taxes. When you sell your home, the local government gets notified and will update your property taxes based on any upgrades and improvements made in preparation for the sale. In most cases, the new owner of the home will be taxed on the new assessment.
By comparison, minor improvements like giving the walls a fresh coat of paint, installing a new kitchen backsplash, and replacing the kitchen and bathroom counters might not even require a new assessment, and your updated tax bill shouldn’t be much higher than the previous one.
In any case, it’s worth consulting with a tax professional before moving forward with any remodeling decisions.
Home improvements that drive up property taxes
Determining which home improvements can trigger reassessment and raise your property taxes depends largely on how new construction is defined. Generally speaking, new construction covers any improvements that add square footage to the property, such as installing a new deck or adding a new bathroom.
New construction can also refer to any significant add-ons to the property that wasn’t there when you first purchased it. For example, installing an in-ground pool may not add square footage to your home, but it can potentially make your property more valuable, which calls for a reassessment.
Lastly, new construction can include any major remodel, such as full kitchen renovation or converting the garage or the attic into in-law quarters.
Repairs, replacements, and maintenance work are tax-neutral in most cases.
So if you want to avoid a reassessment, don’t get carried away with home improvements. Keep your projects small and simple. But if you’re ready to make a big change, such as updating your home or getting it ready to sell, let a tax consultant guide you through the process.
If you’re looking for the perfect home in Southern California, contact The Pacitto Group here. You can also call us at 805.494.4663 or send an email to Teri(dotted)Pacitto(at)sir(dotted)com for inquiries. We help clients buy and sell luxury homes in gated communities and non-gated neighborhoods, including Westlake Village and the surrounding areas.