Here’s What Happens to Your Property Taxes When You Renovate Your Home

When you buy a home, there are numerous expenses you take on. In addition to a mortgage loan, you also have to bear the cost of homeowners insurance, upkeep, and repairs.

And then there are property taxes to think about. Your property tax bill is generally calculated by taking your home’s assessed value and multiplying it by your local tax rate.

The more updated your home is, the higher your property tax bill is likely to be. So that’s something you’ll need to consider when planning for renovations.

How much will renovating really cost you?

When you improve your home, there’s a cost involved, whether it’s $1,000 for new carpeting or $40,000 for a new kitchen. But in addition to the cost of your renovation itself, you have to anticipate an added cost — a higher property tax bill.

Now in some cases, a minor home renovation won’t change your property tax bill. Swapping grungy carpets for newer ones likely won’t have an impact on your home’s assessed value, so a project like that shouldn’t lead to a higher bill.

But a major renovation could drive your property taxes upward in a very big way. This especially holds true if you’re increasing your usable living space — for example, finishing an unfinished basement or putting on an addition.

Bob Villa says you can expect your property tax bill to increase for upgrades that are permanently attached to your home, like an inground pool. Also, adding a bedroom or bathroom could raise your property tax bill, because even though you’re not necessarily adding square footage to your home, you’re carving out more useful spaces.

How will your city or town know to raise your property taxes after a renovation?

Most homes get assessed on a preset schedule. It could be that assessments are done once a year, once every other year, or once every three years.

When the time comes for your home to get an assessment, someone will show up to your property to physically examine your space. From there, they’ll be able to compare what they see to your home’s last assessment to figure out if anything has changed.

Let’s say that as of your home’s last assessment, your basement was unfinished. If it’s since been finished, that’s something your assessor will note, and that will go into determining your property’s assessed value.

Also, your assessor will likely review permit records in the course of assessing your home. If they see that you were issued a permit for a new inground pool, that alone will clue them in to the fact that your home has a new feature that’s apt to change its value.

Don’t get caught by surprise

All told, renovating a home can be expensive. But don’t forget to account for the added cost that might ensue in the form of a higher property tax bill.

In some circumstances, your town may be able to tell you what sort of increase you’re likely looking at based on the permit application you submit, which should outline the scope of the work. That won’t always be the case, but it’s worth asking.

If your town tells you that adding a deck will likely increase your property tax bill by $400 a year, that at least gives you a number to work with. Ultimately, though, you’ll need to wait for your home’s next assessment to see what the impact really is.

This article was written by Maurie Backman from The Motley Fool and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].