Home Remodeling or Remodeling Could Increase Your Property Taxes: What You Need to Know

If you own a home, you pay property taxes. And if you renovate your home, those taxes will likely go up. Which renovations increase your property taxes, explains Lifehacker.

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Although property taxes vary across the U.S. (Essex County, New Jersey, has one of the highest averages at $13,145, while West Virginia has one of the lowest at $989), you still have to pay them. The more expensive the home, the higher the tax. And renovations that increase the value of the home increase the tax amount accordingly.

It may take some time before your local tax assessor takes your renovations into account. But sooner or later, the property will be revalued and taxes will increase accordingly, so it's best to be prepared in advance.

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Part of that preparation involves understanding which types of repairs will have the biggest impact on your tax bill. Tax rates and assessment procedures vary widely from place to place, so it’s impossible to say exactly how any given project will affect your specific taxes — but these seven types of repairs are most likely to cause your property taxes to rise.

Extension to the house

Generally, anything that adds living space to your home will increase your property taxes. Taxes are typically assessed based on potential resale value, rebuilding value, or projected rental value (sometimes all three), so having additional living space will increase each of these.

This also applies to other improvements that add living space without new construction, such as converting a garage into a bedroom or office, or dividing a bedroom into two (a three-bedroom home, even if small, is often considered more valuable than a two-bedroom home). Some detached structures, such as a shed in the backyard, can also increase the tax bill — especially if they are built on a foundation and connected to water, electricity, and sewer.

Adding a bathroom

Like bedrooms, more bathrooms usually mean a higher home value, so adding another one will likely increase your tax bill. Even upgrading existing bathrooms can increase your tax bill, as the number of fixtures is often factored into the assessment—a toilet and sink are valued lower than a full bathroom with a shower, tub, and toilet. Turning a basic bathroom into a luxury spa can be expensive on your taxes, even if you haven’t added a new room.

Installation of a pool with a sunken bowl

While pools are controversial in terms of their impact on home value, they can actually lower potential asking prices because they are expensive to maintain and not everyone likes them. However, they do increase property values ​​because a) they are a distinct improvement that adds something to the property that wasn't there before (and usually still adds value); and b) they are considered "real property" (as opposed to personal property) because they are attached to the home and are a luxury. (An above-ground pool would likely be considered personal property and would not affect the tax.)

Adding a Terrace or Patio

Adding a deck or patio to your property certainly improves it, making the space more enjoyable and functional. It won’t always increase your property taxes—different tax codes have different rules for outdoor structures. The size, scope, and materials used will matter. But in general, if a new outdoor space increases the potential market value of a home, it may increase your taxes.

Basement improvement

If your current tax assessment is based on a home with a dank, dark basement filled with cobwebs and exposed pipes, don’t be surprised if converting it into a cozy recreation area or guest room results in a higher tax bill. Since a finished basement typically yields a return on investment of about 70% in terms of home value, if you invest an average of $32 in basement remodeling, the home’s value will increase by about $000, and your taxes will increase accordingly.

General site improvements

The key concept in real estate taxation is improvement. Every home started out as an empty lot. Someone cleared it, installed utilities (sewer, water, electricity), poured a foundation, and built a house. All of these actions increased the value of the land, and this process continues every time you make a renovation or add on.

But this doesn't just apply to the house itself - improvements can be made to the land as well. For example:

• Fence installation
• Asphalting or paving a gravel or earthen driveway
• Adding a drainage or irrigation system
• Improvement and landscape design
• Installation of outdoor lighting
• Site planning (re-profiling of the terrain)
• Laying sidewalks

All of these projects improve the site, increase its value and can lead to a significant increase in taxes.

Adding a fireplace

A fireplace makes a home feel cozier and warmer, and it also adds value. Fireplaces are generally considered a luxury (unless they are the primary source of heating), which is one reason why homes with fireplaces sell for about 13% more than similar homes without one. Accordingly, you can expect the extra cost to be reflected in your next tax revaluation.

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Make inquiries before starting repairs

If you're planning a renovation, addition, or other home improvement, it can be difficult to determine how and when it will affect your property taxes. And one rule of thumb is likely to hold true: If you get permits for the project (and you should if your local building code requires it), sooner or later the IRS will find out about the project and reassess your home to adjust your taxes.

The easiest way to get at least a rough idea of ​​how your renovation will affect your taxes is to call your local tax office before you begin. They probably won't be able to give you an exact figure, but they can tell you if you should expect an increase in taxes and perhaps give you a general idea of ​​how much they will cost.

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