When To Ask For A Property Tax Reduction

Investing in real estate is a wonderful activity. It allows just about anybody with the right hard work and attitude to create a substantial fortune within their lifetime much easier than many other forms of investing allow for. It's a great way to build something for the future which everybody wants to do to some degree or another.

One thing that drives me crazy when it comes to real estate investing though is property taxes. Now I should say this right off the bat, I hate all taxes. I know there's some people that believe we should pay taxes and that we are obliged to pay taxes and that we get the benefits of roads and bridges and security from our army and, blah blah blah I just don't care. I hate paying taxes!

But that's not what I hate the most about property taxes, what I really hate is the fact that cities can raise your property taxes for absolutely no reason and they do so all the time. Nothing destroys your business plan quicker than an unforeseen increase in local property taxes.

Luckily there are several things you can do to challenge property tax increases and there are certain times when it makes more sense to do it than others and that's what I'd like to talk about in this article today.

First off, property taxes are calculated by two things; the tax rate multiplied by the assessed value of the property. You can't do anything about the tax rate, the town will set that at whatever they want. But you can challenge the assessed value of the property. If the town thinks your property is worth more than you know it is, then you can challenge them and often be successful.

But there are certain times when you should challenge that are more opportune than other times. For instance, you should challenge just before you make any necessary repairs to damages or any forms of deterioration in your property. This should be self-evident. If you are arguing that your property is not worth as much, you can't very well do that right after you fixed it up. So challenge it, get the taxes reduced, and THEN fix up the property


Another good time to challenge is when the price that you pay for the building is lower than the assessed value. Take now for instance, we are in the midst of a recession and the country is full of houses that are assessed at high values that are not selling at those high values. If a house is assessed at $200,000 I might buy it for $120,000 today. As soon as I do you can bet the first thing I'm going to do is challenge the property taxes because they will be assessed based on that $200,000 price. And I can prove that the property is only worth $120,000 because that's what I just paid for it!

Another good time to challenge is when your net income has dropped and you can prove that it has. Rental properties are assessed based on their value, and their value is determined by how much income they produce. If income has dropped, then by definition the value of the property has dropped and you can easily prove that with your tax statements.

So there you have three times when it may be opportune for you to challenge a property tax assessment. Don't be afraid, get your facts and figures straight and make your case and you will be surprised how easy it actually is to win.