If you could significantly (but legally) reduce your taxes and your occupancy costs, would you do it? Have you gotten any benefit from the “crash” in the real estate market?
These two questions, and their answers, are more interrelated than it may seem.
Cutting taxes is always on our dealer-clients minds. Clients scream about their income tax; they wail about the Estate/Inheritance tax; HOWEVER, they often overlook their PROPERTY tax. The purpose of this article is to provide you with some information which may assist you in reducing your property taxes.
BENEFITING FROM THE REAL ESTATE CRASH
Property taxes are an amount (which varies from county to county) per thousand of the “assessed value” of the subject real estate. The assessed value is based on the “fair market value”.
Although the laws of each state may have a slightly different articulation, the “generic” definition of fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and each being familiar with all the facts relating to the particular property.
This standard, although widely quoted, is also widely debated. To determine “fair market value” consideration is given to:
- The sales prices of “similar” properties with adjustments for time, location, and physical the differences between the subject property and the property sold (the “Sales Approach”);
- The cost to reconstruct a building (adjusted for depreciation) (the “Cost Approach”); and
- The economic value of the property to an owner if it were rented for cash (the “Income Approach”).
The resulting “value” of each of these three approaches is “correlated” so that an appropriate level of emphasis is attributed to each value.
Although not part of the computation of “fair market value” per se; the assessed value of similar properties is also extremely relevant.
Because of the depressed real estate market it is likely that the results of applying BOTH the Sales Approach AND the Income Approach would indicate that the “fair market value” of your property has declined. A decline in fair market value means a decline in assessed value. A decline in assessed value results in a decline in property taxes. Hence, there is actually a potential benefit to you from the real estate crash.
REDUCING YOUR PROPERTY TAX
Initially, the assessed value of your real estate is determined by either a County or City Assessor on January 1st of an “assessment year”. In Iowa, each odd numbered year (such as 2011) is an “assessment year”. The value determined in the odd numbered year normally carries over to the subsequent even numbered year.
The Assessor sends the property owner a notice of the assessed value, and if the property owner disagrees with the assessed value as determined by the assessor the property owner has the right to “protest” the valuation. The protest is filed with a (City or County) Board of Review and is normally based on the grounds that:
- The property is assessed for more than its fair market value (in which case the owner must specify what they believe to be its fair market value); and/or
- The property is assessed for more than similar properties (in which case the owner must specify which properties the owner feels are “similar” and their assessed values).
The Board of Review holds a hearing and makes its determination of value. It can agree with the assessor, agree with the owner, or make its own determination of value.
If the owner disagrees with the Board of Review determination, it may appeal the decision to either (but not both) the applicable district court or the Iowa Property Assessment Appeals Board.
n If Board does not grant satisfactory relief, Owner may file suit in District Court
n No additional ground of appeal may be added.
n Assessor(County) may also appeal the decision
n Suit must be filed within the latest of:
n 20 days from the adjournment of the Board of review; or
n May 31st.
n This is a lawsuit like any other.
n County Attorney represents Board of Review.
n Normal rules of evidence and discovery apply.
n Notice of Appeal is served on the Chairperson, presiding officer, or clerk of Board.
n Trial is to a Judge- no jury trial.
n Burden of proof is on Owner, UNLESS Owner has two independent appraisals sat which point the burden of proof transfers to the Assessor.
n Action Steps:
n Use County Assessor’s Website to examine valuation of properties YOU consider to be “comparable”.
The Website address is: http://www.co.polk.ia.us/departments/assessor/assessor.htm
n Get bids from several appraisers:
n “Preliminary” or “windshield” appraisal
n Property tax appraisal
n Determine how you want to proceed:
n Do you want to obtain a preliminary appraisal?
n When do you want the preliminary appraisal?
n When will the the property tax appraisal be done?
n How will costs be allocated?
n Each pays own (separately) ?
n Cost for all allocated on some basis (ex. relative value of properties)?
n Upon receipt of the valuation form the Assessor’s office
n Check for errors
Promptly appeal to Board of Review and append the appraisals