Do property taxes increase with new sales price?

Question

I was recently analyzing a property for a potential rental. This was a single family home and I saw that it was last sold in 2005 for roughly $50k. The owner of the house recently (2016) did a complete renovation and updated the house. The house is now for sale for $150k (2017).

Property taxes on the house for the year 2016 were $600. If the property is sold for $150k will this cause the property taxes to go up or will they remain similar to the prior year?

Appreciate any feedback.

Thanks!

Chris K. · Answer

@Alek Liskov

Try googling "uniformity clause" and "Pennsylvania" when you have the chance. For better or worse, the uniformity clause found in the state constitution restricts how Pennsylvania and its political subdivision can tax the citizens. The consequences go far beyond assessment taxes.

But to give you an example of how it impacts real property assessments, the uniformity clause essentially blocks a municipality from reassessing a property unless all other similar properties are reassessed as well. This creates interesting results --- one them being that counties in Pennsylvania rarely reassess their properties due to the potential political fallout. Luzerne County, for example, didn't do a single reassessment between 1965 and 2008. I don't think Lackawanna County did one since 1968.

The real fun happens when a court orders a reassessment. See the articles below about what's happening in Delaware County right now. I'm surprised that the residents haven't formed a lynch mob trying to hunt down all the people involved in that assessment lawsuit.

http://www.delcotimes.com/article/DC/20170329/NEWS...

http://www.philly.com/philly/news/politics/reasses...

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

Steve Babiak · Answer

In PA, the county can and will reassess a property where renovation permits were obtained, since the renovations themselves change the value of the property - regardless of whether the property gets sold at the completion of the renovations.

Chris K. · Answer

@Alex Flaugher

As a few other's have mentioned, it may partially depend on state law. For example, Pennsylvania makes it somewhat tricky for municipalities to raise taxes. So once in a while, you see nice SFR with absurdly low assessments. But yes, even in a place like Pennsylvania, you should generally underwrite with the assumption that the property taxes will go up if it sells for a much higher price.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

Alek Liskov · Answer

Very informative. Thanks @Chris K.

This actually I suppose can be used for strategy. To your point, counties don't just wake up one day and do reassessments and thus having done one recently (Luzerne being an example) probabilistically reduces the chances of them going up again in the near future.

Anthony Dooley · Answer

YES. The assessed value will be affected by the sales price on the following year's assessment.

Chris K. · Answer

@Steve Babiak is right on as usual. There are few different events that allow municipality to reassess the property. And as a practical matter, many reassessment cases involving residential properties settle before it gets out of hand (like in Delaware County).

Commercial properties are a bit different since they carry a higher value and their uniformity clause issues are not as bad as residential properties. So typically the municipality will spend more time fighting you although settlements are still pretty common.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

Alek Liskov · Answer

@Chris K. thanks for the PA specific input. Could you elaborate a bit more on "tricky"?

Thanks,

Alek

Alex Flaugher · Answer

Thanks for the feedback! I was using the Bigger Pockets calculator and changing the property taxes turned it from a desirable property to a undesirable property.

Christopher Albritton · Answer

Property taxes are based off of how much a home is worth, so if it sells for more the taxes will go up. Different states, cities, etc. have different caps for how much it can increase in one year though, so the jump in taxes shouldn't be staggering.

I'm nowhere near as experienced as others on the site, so if there's detail I missed I look forward to learning more as well!

Do property taxes increase with new sales price?

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