Owning a home comes with plenty of expenses, and some of them show up in places you might not expect. You budget for the contractor, materials, permits, and everything else that comes with a renovation. Then there’s the possibility of a higher property tax bill after the work is finished.
Property taxes are usually based, at least in part, on your home’s assessed value. Make a major improvement that increases the value of the property, and your local tax assessment may rise with it. The rules vary by location, and not every project automatically leads to a higher bill, but certain upgrades are more likely to get an assessor’s attention.
Before you start planning that dream renovation, here are some home improvements that could affect what you pay in property taxes.
Swimming Pools
A backyard pool can make a home more appealing, particularly in areas where outdoor swimming is popular. It can also increase the property’s assessed value.
The tax impact depends on local rules and how assessors treat pools in your area. A pool also brings ongoing costs for cleaning, repairs, equipment, insurance, and utilities, so the expense can extend well beyond the initial installation.
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Home Additions
Adding a bedroom, sunroom, family room, or second story changes the amount of usable space in your home. More square footage can mean a higher market value, which may lead to a higher assessment.
The same can apply to additions built for rental income. If you’re adding a separate living area or another bedroom, check your local assessment rules before construction begins.
High-End Kitchen Renovations
A kitchen remodel can make a home much more appealing. Custom cabinets, stone countertops, upgraded appliances, and other premium finishes can also raise its value.
The National Association of Realtors has found that certain kitchen improvements can add value to a property. That can be good news if you’re planning to sell, but a higher assessed value may also mean a larger property tax bill.
Solar Panels
Solar panels can cut electricity costs and help a home use less grid power, but the tax treatment varies widely from one location to another.
Some states and local governments offer property tax exemptions for solar installations, while others may include some or all of the added value in an assessment. Before installing a system, check the rules where you live so you know whether the improvement could affect your taxes.
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Finished Basements
An unfinished basement usually has limited living space, but turning it into a bedroom, recreation room, home gym, or apartment can add considerable value to a house.
Once a basement becomes finished living space, it may be treated differently for assessment purposes. A finished basement with a bathroom or separate entrance can be particularly valuable, which could also affect the property’s taxable value.
Luxury Bathrooms
A basic bathroom update is one thing. Turning the room into a spa-style retreat with heated floors, custom tile, premium fixtures, a soaking tub, and an oversized shower is another.
Major bathroom renovations can raise the overall value of your home. Whether that leads to higher property taxes depends on your local assessment practices, but a substantial improvement is more likely to be reflected in the home’s value than a minor cosmetic change.
Landscaping Overhauls
Landscaping may seem separate from the house itself, but major outdoor improvements can contribute to property value.
A Virginia Tech study found that good landscape design can increase perceived home value. A professionally installed patio, outdoor kitchen, elaborate gardens, retaining walls, or water feature could all make the property more valuable.
A few new plants probably won’t make much difference to your tax bill. A major backyard transformation is another story.
Home Offices
A small desk in a spare bedroom isn’t likely to change a home’s assessment. Building a dedicated office, converting an existing area, or adding new square footage could be different.
The tax impact depends on the type and scale of the project. If you’re building a permanent structure or adding space to the house, keep in mind that the new area could factor into the property’s assessed value.
Detached Structures
A detached garage, workshop, guesthouse, studio, or substantial storage building can add useful space to a property.
It can also add value. A simple garden shed may have little or no effect, while a finished detached garage with electricity, plumbing, or living space could be treated as a major improvement by a local assessor.
Smart Home Technology
Smart thermostats, lighting systems, door locks, security cameras, and automated home systems can make a house more convenient. By themselves, these features usually aren’t the type of improvement that causes a dramatic change in property taxes.
The bigger concern is the overall value of the property. If smart technology is installed as part of a much larger renovation, the combined improvements could contribute to a higher assessment.
Expensive Flooring
Replacing worn carpet or damaged flooring is a common home project. Installing premium hardwood, imported tile, or other high-end materials can take the renovation to another level.
A flooring upgrade alone may have little effect on your property taxes. Still, major renovations that improve the quality and value of the entire house can be reflected in an assessment, depending on local rules.
Energy-Efficient Windows
Replacing old, drafty windows can lower heating and cooling costs while making a home more comfortable.
New windows may also improve the property’s condition and market value. Some states and municipalities offer tax incentives or other benefits for energy-efficient improvements, so check your local rules before assuming the upgrade will increase your property tax bill.
Garage Conversions
Converting a garage into a bedroom, office, family room, or rental space can give you more usable living area without building an entirely new addition.
The catch is that you’re changing how part of the property is used. Once a garage becomes finished living space, the improvement may increase the home’s assessed value. A conversion that includes insulation, plumbing, electrical work, and other major upgrades is more likely to draw attention during an assessment.
Check Local Rules Before You Renovate
A higher property tax bill isn’t an automatic result of every home improvement. Assessment rules differ by state, county, and municipality, and some areas offer exemptions for certain upgrades.
Before spending a large amount on a renovation, check with your local tax assessor or property appraiser. A quick call can tell you whether your planned project is likely to affect your assessment and whether any exemptions or tax breaks apply.
A renovation can still be a smart investment. Just remember to factor in the possible long-term tax cost along with the price of the project itself.
