It’s called home improvement for a reason – because your home is objectively better after the work is done. However, it’s important to consider all the effects of a home improvement, including the impact your home upgrades may have on your property taxes.
Since property tax is assessed based on the value of your home, it’s possible for a home improvement project to raise your property tax bill. Some projects won’t have any effect at all, but some will. This quick guide is designed to show you exactly what type of home improvements increase property taxes.
What Causes Property Taxes to Increase?
Property taxes can only be raised after a home undergoes a reassessment. In San Diego, only two events can cause the value of a home to be reassessed – a change in ownership or the completion of new construction.
New construction is generally defined as any project that requires a building permit. Whenever these permits are filed, they are automatically sent to the assessor’s office. Permits for repairs, replacement, and maintenance typically do not trigger a reassessment. Permits for genuine new construction, however, do trigger a reassessment. Depending on the project specifics, your property taxes could go up as a result.
What Qualifies as New Construction?
Determining what home improvements increase property taxes depends on the definition of new construction. The first definition is anything that adds square footage to your home. For instance, if you built a new 500 square-foot family room on the back of your home, the construction project would trigger a reassessment and your tax bill would likely go up.
The second definition is anything significant built on your property that was not there before. Putting in a pool, for example, doesn’t add to your square footage but it does make your property more valuable. Consequently, a reassessment is almost guaranteed.
The final definition is any major remodel. That could mean a completely new kitchen or the conversion of a basement/attic into a living space. Anything deemed repair, replacement, or maintenance is tax neutral. However, significant upgrades and improvements get the attention of the assessor’s office when permits are pulled.
How Much Will Property Taxes Go Up?
The answer depends on how much value is added by your home improvement. Consider the 500 square-foot family room. The reassessment determines how much value the addition adds to the home based on present market conditions and the total cost of construction. That figure is then added to the existing value of the home, and property taxes are based on the new total value of the property. The process is the same for a major remodel.
Even though the total value of the property goes up, the existing value of the property can’t change. When assessors arrive to inspect new construction, they don’t reinspect the rest of your home or land. There are also exceptions if the improvements you made were for the purposes of earthquake safety, fire protection, soundproofing, or to accommodate persons with disability. Any reassessment can be appealed with the assessor’s office if you feel your recalculated property tax bill is unfair.
Considering ROI When it Comes to Remodeling
Higher home values are a good and a bad thing. It’s true they trigger higher property taxes, but they also make your home sale more lucrative and approve you for a higher line of credit. Home improvements are not so much a cost as they are an investment. And, if you invest wisely, your returns will exceed your costs and your house will be more valuable overall. Data from a 2018 list of popular local remodeling projects appears below. Compare the average cost vs. the increase in home value. Once you do it’s clear that remodel projects typically justify their cost even when they trigger higher tax bills.
- Bathroom Remodel – Job Cost - $22,877, Resale Value - +16,637
- Kitchen Remodel – Job Cost - $72,164, Resale Value - +$49,864
- Master Suite Addition – Job Cost - $140,480, Resale Value - +94,298
Make Your Ideal Improvements with Lars Remodeling & Design
At Lars Remodeling & Design we provide everyone we serve with the area’s most comprehensive remodeling and design services. This means that we can help you plan, execute, and perfect your dream home improvement project. We can also help you understand how any project will affect your home value, tax bill, lifestyle, and more. Expect the best in all things when you contact Lars Remodeling & Design.
