Certain home improvements can increase your home’s value, but they could also affect your property tax bill. Tax assessors use the assessed value of your home to calculate how much you pay in property taxes. Factors that can influence assessed value include property size, condition, features, and more.
There are many reasons to invest in home improvement projects, but if you’re also looking to save on property taxes, you might want to give consideration to which projects you choose.
Generally, home improvement projects that increase square footage or livable space, require a building permit, etc. will trigger a property tax reassessment. It is safe to assume that projects that are more than $5,000 will increase your taxes. Such projects include, but are not limited to:
- In-ground pools
- Garage conversions
- Detached garages
- Home additions
- Additional bathrooms or bedrooms
- Sunrooms or all-year rooms
An in-ground pool is something the whole family can enjoy, and it’s also a great way to increase property value. It’s estimated that a pool can add 5 to 8 percent to the value of your home.
Because an in-ground pool can increase property value, it could also increase your taxes, especially if you live in a neighborhood where pools are in high demand.
An above-ground pool, however, is not permanently attached to the ground, and therefore wouldn’t increase your property taxes.
Again, projects that add square footage usually affect property taxes. Conventional additions, detached garages, sunrooms, and garage conversions are common examples of projects that add value to the home. In some states, even a shed is considered to be additional square footage.
When you increase the square footage, you’re increasing the size of the property. Square footage is one factor that is used to calculate assessed value.
Additional Rooms or Living Space
Even home projects that don’t increase square footage can potentially increase property taxes. Finishing a basement or adding a bedroom or bathroom without changing square footage increases the livable space in your home, and therefore the value.
Major Renovations or Remodels
A complete kitchen or bathroom renovation would be considered a major upgrade or improvement and would be subject to property taxes. Adding drywall or electrical outlets to an unfinished basement would likely require a building permit, and would be a large renovation. These types of projects are usually designed to improve the condition of the home.
How Will Tax Assessors Know if I Completed a Home Renovation?
Municipalities often use the mass appraisal system. This means that they do not do an individual review of your property like a third-party appraiser does. They often don’t even enter the inside of your home. However, that doesn’t mean you can steer clear of a tax increase.
Tax assessors have access to building permit records, so this is one way they can find out about major home projects. Appraisal district employees also drive the neighborhoods throughout the year and will note properties with ongoing renovations.
Changes in market value and home sale prices also influence your property taxes. Even if the assessor doesn’t know about your finished basement, as the sale prices of your neighbors’ homes go up, so will your taxes.
Projects That Usually Don’t Affect Property Taxes
Not every home project will increase your property taxes. Usually maintenance and routine repairs, such as replacing your roof, won’t lead to an increase on your tax bill.
Other home improvement projects that typically won’t affect property taxes include:
- Painting, even to the home’s exterior
- Routine repairs
- New flooring
- New cabinetry
- Energy-efficient upgrades, such as new windows or appliances
- Upgrading landscaping
- Certain structural changes, like removing a wall
Estimating Your Tax Increase
You may be able to estimate how much you’ll pay in property taxes if you know how much the upgrade will increase your home’s value. If you’re not sure, do some research to calculate the typical return on investment for the home improvement project.
Once you know your estimated appraised value, multiply that value by your tax rate. Your appraisal district’s website posts tax rates for the current year if you aren’t sure.
It also doesn’t hurt to check with your tax assessor’s office, who may be able to provide information regarding your estimated tax liability.
Lower Your Property Taxes
It’s important to remember that every municipality is different. Adding an in-ground pool could have a different effect on property taxes from one location to another.
In addition, home upgrades are just one factor that can influence your property taxes. You could do nothing to your property and still see an increase on your property tax assessment.
Fortunately, you can file a property tax protest to dispute the value of your home. Should you win your appeal, you can lower your property taxes. Disputing your property taxes is free and you can do it annually, even if the value of your home hasn’t changed.
You can file a protest on your own or utilize the services of a property tax protest company like North Texas Property Tax Services (NTPTS). Our firm specializes in residential properties in Dallas, Collin, Denton, and Tarrant counties.
For more information on lowering your property taxes in Texas, contact our firm.