how often do you see land value greater than improvement value?

Question

Hello BP community!

I was visiting the county assessor site for my first property because I was trying to learn how to determine depreciation. I saw something I need help with.

In case this is germane to the explanation - The property is a small 2bd/1 ba duplex (1200 sqft total), purchased for $97,500 in late Sept.

When I look at the assessed value table, I see the following values:

• Tax Year 2016: Land Value: $9,357 Residential Value: $27,837
• Tax Year 2017: Land Value: $5,207 Residential Value: $32,943
• Tax year 2018,  Land Value: $5,207 Residential Value: $32,943
• Tax Year 2019: Land Value: $42,250 Residential Value: $36,125

At the risk of sounding like a total noob - I am confused. I thought land couldn't appreciate that quickly - And I assumed that it was more often than not lower in value than the dwelling. All the examples I research always have it worth 25 - 30 % of the property, not more than 50% of the total value. It's not like there is a big project coming into this area to justify it. If anyone else has experienced this large of a jump, I'd love to hear your thoughts on what may have driven it. I'm very concerned I'm not saving enough aside for taxes. AND how that unplannned tax increase is going to affect my very new CF.

I am researching how to fight the assessment and am also wondering if there are any helpful hints on how to make my argument about the assessment when I challenge it?

Thanks everyone

Karla K

ps... I will now make sure I check county assessor BEFORE I purchase so I know to adjust my analysis. I looked at the history of taxes paid for last couple years for the calculator, but I didn't look to see this year's assessment.

Karla Kahmeyer · Answer

Good to know, Thanks. The other part that is a bit of a bummer is that I won't get to depreciate as much of the property on my taxes. So I will probably end up with less in my pocket from taxes on that end too.

Thanks again for the direction.

Michael Plaks · Answer

@Karla Kahmeyer

Land is very often more valuable than the house, particularly in hot urban areas with older houses. This in itself is not a problem. It does bring up two related issues:

1. Is your county assessment fair? As far as I know, all counties have an appeal process where you can try to lower their assessed value. Usually, you cannot lower the land value, because it is determined across an entire area and is averaged across multiple properties. On the other hand, you can argue the value of the house (improvements). The procedures vary between counties. In some places, you can file a protest online. In others, you need to mail your paperwork. Many counties have in-person hearings. Depending on the numbers, it may make sense to hire a professional company to do the protest for you, however your numbers are probably not big enough for that.

2. Depreciation. You do NOT have to follow the county assessment for your land allocation on Federal and state taxes. There are multiple ways to do such allocation, and a county assessment is merely one of the methods. Maybe, you can use a more beneficial allocation. Also, reducing land allocation is not the only way to increase your depreciation deduction. Ask your accountant.

And keep in mind that depreciation, contrary to the popular myth, is NOT a freebie. When you sell a property, you have to return all your prior tax savings from depreciation. Depreciation is a LOAN in this respect.

Jay Hinrichs · Answer

Very common on the west coast and virtually any property on the SF penninsula the ground is valued at more than the improvements up until you move into larger homes that are say 4 to 10k sq feet..  like in Palo Alto were U have values at 2.5 mil for a 1500 sq foot 70 year old rancher the improvements even at 300 a foot  are 450k and the land is 2 million.. very common.

Karla Kahmeyer · Answer

@Nic Stergion It is in Jackson County. I've been starting to get up to speed on the story. What are your plans? Will you dispute, or assume its a 1x thing and absorb it in your expenses?

Nic S. · Answer

@Karla Kahmeyer is this in Jackson county? There was a huge story on the land assessor assessed properties a couple months back. You can google it - taxes on my SFH in Raytown jumped 20% as a result.

Karla Kahmeyer · Answer

Thank you all. I appreciate the perspectives tremendously. This is a generally lower income suburb of Kansas City Mo, so it was very surprising to me (and there has been quite the scandal about how the county has approached the increases in parts of the mid-to low income areas, and barely increased anything in other areas).

I did have an appraisal completed - I'll take a look at that.

I definitely appreciate the wisdom. This community is such a blessing.

All the best

Karla

Natalie Kolodij · Answer

I see it a lot in areas that have had high appreciation.

A lot of my clients are in Seattle.

Do you think a 800 sq foot 100 year old home on Queen Anne hill is worth $600k....or is the location of being on Quene Anne hill worth $600k?

Did you have an appraisal done on purchase for the property? IRS accepts appraised values as well. If that's more beneficial for a Land vs. Building value you can utilize that.

Theresa Harris · Answer

You always have the right to appeal your tax assessment.  Just because the assessed value doubles, doesn't mean your taxes will increase proportionately.  If all the houses doubled based on the assessments, chances are taxes will only go up a little bit.

Karla Kahmeyer · Answer

Thanks for the suggestion @Theresa Harris. I've been reading articles, watching news clips this morning about how some parts of this county (the poorest parts) have had their property taxes increased to the full legal limit the state allows without an assessor needing to visit the property. Across the entire county. I'm now thinking this falls into that scenario. I'll look at the surrounding neighborhood next.

If they've all been raised in that manner - do I even have recourse then - seems like I couldn't use your suggestion very effectively if this is the case.

I'm still digging.

Theresa Harris · Answer

@Karla Kahmeyer  Pull tax records for adjacent properties and see what happened to the land value of those homes.  That is the easiest option.  You can then use that information when you appeal the taxes.  Make sure the land is comparable in size, if yours is a corner lot, look at the other corner lots.

how often do you see land value greater than improvement value?

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