Appealing your property taxes is a pretty common practice, particularly for real estate investors who may have purchased in neighborhoods where quickly accelerating home prices are skewing the market and causing appraisers to be a little too “generous” with some of those estimated values.
However, in 2022, the National Association of Realtors (NAR) is warning that it is probably going to be pretty hard to do this successfully thanks to “double-digit annual percentage gains in existing-home prices for the past year.” In fact, in November 2021, home values were already up nearly 14 percent year-over-year, and even with some markets cooling it seems unlikely that things will have slowed much by the time those tax assessments hit the mail.
“It depends on where you live as to when those changes in property values that we are seeing take place,” said senior policy fellow at the Bloustein Local Government Research Center at Rutgers University Marc Pfeiffer in an interview with Barron’s. He noted that some markets only assess every five years, which could mean that property owners will experience some serious sticker shock whenever that new cycle of values comes around.
This will be particularly true for homeowners who received breaks on state and local taxes (SALT). Although these payments were capped at $10,000 in 2017, the Build Back Better initiatives currently being supported by the White House could raise that cap to $80,000.
“It is a significant issue … in those places where taxes are significantly above the state average,” Pfeiffer said. “Just because people are wealthy, it doesn’t mean they don’t wince when they are writing that check.” He said some states and municipalities have been reassessing at higher property tax rates to help fund services during the ongoing COVID-19 pandemic. While federal funding has helped bridge this gap in some cases, there are still shortfalls in many markets.
Not surprisingly, southern states like Florida and Texas are attempting to balance out taxpayer burdens by lowering rates, and some states have actually set mandated levels of acceptability for property taxes.
Politicians are also attacking 1031 exchanges in hopes of ramping up collections on capital gains taxes. Some are promoting a cap of $500,000 for individuals and $1 million for couples using 1031 exchange strategies.
“There is no real certainty on what might happen over the next couple of years,” observed Jesse Little, senior director of wealth planning at Wells Fargo Private Bank. “It could certainly be a part of a next wave of potential changes,” he added.