What to Know Before Filing a Real Estate Tax Appeal

  • Tax strategies
  • 4/17/2024
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Key insights

  • Your local property assessor is tasked with establishing an assessment for property in their jurisdiction.
  • Property assessments are the basis for calculating real estate taxes which fund essential community services such as education and public safety.
  • There are three approaches used to determine property value assessment: Cost, Market, and Income.
  • Taxpayers should be aware of the different valuation cycles and appeal deadlines across the United States, as missing an appeal deadline could result in significant lost tax savings.

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By understanding the assessment process, identifying tax-saving opportunities, and navigating the appeals process effectively, you’ll be well on your way to achieving a fair and accurate assessment of your property’s value.

The basics of property assessment and taxation

The property assessment and taxation process begins with local assessors who are tasked with establishing values for property (real estate and, if applicable, business tangible personal property) in their jurisdiction. Subsequently, a county/municipal board or similar entity establishes the jurisdiction’s budgets for essential services such as schools, emergency services, and recreational facilities. In general, this budget is divided by the total assessed value of the assessed property in the jurisdiction resulting in a tax rate used to calculate an individual properties annual real estate tax bill.

  • For example, with a billion dollars of assessed value and a requirement of a $20 million budget to run a county, the tax rate would be 2%. If your property’s assessed value was $1,000,0000, the property tax bill would be $20,000.

Most states reassess annually but there several states that reassess on a two-year to five-year cycle. It is important to understand these assessment cycles as well as when you have the right to appeal an assessment. Assessment notices are sent to property owners, who then have a narrow window — typically 30 to 60 days — to review and contest the assessed value by a certain date. Missing an appeal deadline can have significant financial implications.

The three approaches to property valuation

There are three primary approaches to property real estate valuation: 1. cost approach; 2. market approach; 3. income approach. Each offers a different perspective and employs different techniques to estimate a property’s value. The chosen method or combination of methods depends on the specific characteristics and circumstances of the property being evaluated.

Cost approach

With the “cost approach,” the focus is on determining what it would cost to buy the land and improvements (e.g., buildings) —or replace a property with a new one — while also accounting for all forms of depreciation impacting the property’s value. Key factors like age, square footage and ceiling height can significantly influence the valuation.

Market approach

The “market approach,” or sales comparison approach, evaluates property based on recent selling prices of similar properties in the jurisdiction. Adjustments are made for differences in age, location, size, and other relevant factors. The market approach is based on the principle of substitution, which says a buyer will not pay more for a property than the cost of acquiring a similar property.

Income approach

The “income approach” is typically used for properties generating rental income, like office buildings, retail centers or apartment complexes. It involves assessing market rental and expense rates, factoring in vacancy rates and operating expenses, to derive a net operating income. This net income is then capitalized using a “capitalization rate” determined by analyzing recent market transactions or calculating a cap rate based on financial metrics.

  • Utilizing one or more of these approaches, an assessor will determine the value of the real estate, on a specific day of the year (e.g., January 1), which will be utilized as the basis for determining the real estate tax associated with that property.

The property tax appeals process

A property owner/taxpayer does not necessarily need to accept an assessor’s assessment. Property owners will generally have the right to appeal an assessment, if they believe that the property has been overvalued, for whatever reasons. However, the process of appealing an assessment can be lengthy and is typically comprised of several stages that the owners must navigate. Most importantly, there is a critical window — often ranging from 30 to 60 days, depending on the jurisdiction — during which taxpayers can review their assessment valuation notices, and decide whether it is warranted to file an appeal.

If the taxpayer decides to appeal, the initial step is typically a “informal” discussion with the assessor (and, if applicable, the valuation firm utilized by the assessor) to present evidence supporting a value reduction. If the issue remains unresolved, a formal appeal can then be timely filed with the local appeals board – not timely filing an appeal request by a predefined due date will forfeit a taxpayer’s right to challenge an overvaluation. The final recourse, if needed, involves appealing to the court. Appealing to court typically necessitates hiring a property tax attorney and an appraisal expert. The decision to pursue litigation is generally contingent on a thorough cost-benefit analysis, considering the potential tax savings against the additional expenses associated with legal proceedings.

How we can help

Property owners should be vigilant about reviewing their property valuations and property tax bills each year. If they believe their property is overvalued resulting in excessive property taxes, they should consider their appeal rights.

CLA’s property tax professionals can help you review property assessments to determine whether an appeal is warranted and assist you with the appeal process throughout the United States. We have real estate and personal property valuation and taxation experience serving a wide range of organizations, including private sector businesses from manufacturers to agribusinesses, as well as nonprofits and regulated entities (such as health care providers).

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