Protest, protest, protest. Front Range homeowners may have that reaction when they first see how much county assessors increased the value of their homes over the past two years amid worries that next year’s property taxes will shoot up as well. Neighborhoods throughout metro Denver have recorded double-digit price increases, which reflects the region’s hot real estate market. The biggest percentage gains are coming in lower-income neighborhoods that lagged in past cycles. The first steps for those who disagree with value placed on their home is to figure out how much the value should be adjusted and whether a protest has a chance of winning. And with a June 1 deadline for protests, homeowners need to act fast. Should I protest? While a big jump in property value may come as a shock, in most cases it is probably justified. But county assessors can have basic information about a property wrong, and they won’t know details about a home’s condition versus others in the neighborhood. A key calculation to make upfront is whether any potential savings are worth the time and effort. Spending $700 for an outside home appraisal, assuming one can be obtained on short notice, won’t justify saving $50 or $100 in extra property taxes. And it isn’t necessary. How do I research a protest? Researching home price trends in the neighborhood is key to understanding whether a lower valuation is justified and will stand up. For a typical home, assessors say, property owners can do the legwork themselves, perhaps with information on recent sales from a friendly real estate agent. And staff at the county assessor’s office can answer basic questions. Just make sure to say the call is informational and not a protest. If you get a higher value than what’s on your valuation, quit while you’re ahead. If you get a lower value, then it’s time to do some math. To get a ballpark figure on your 2018 property taxes, first, take the new “actual” value in the statements you recently received and multiply it by 7.2 percent. That’s your assessed value. To get a rough estimate of how much lower your 2018 bill might be, do the same math but this time plug in the lower home valuation you came up with. What can I do to improve my odds of winning a protest? Property owners will have a stronger case if they make an argument based on the characteristics or condition of a property. For example, county records may overstate the square footage or number of rooms or show a basement is finished when it isn’t. Your home’s condition can also help you contest a valuation. County appraisers rely on automated models and don’t go inside a home when they set a value. A home with deferred maintenance and no upgrades since the day it was built decades ago is worth less than one that has been remodeled and maintained. Homeowners who’ve had a professional appraisal recently may also have a leg up. Assessors rely on the sales of comparable homes in the surrounding area to determine what a given home is worth. For this last valuation cycle, they looked at sales between July 1, 2014 and June 30, 2016. Given how many borrowers refinanced their mortgages in 2015 and 2016, a homeowner may have a professional appraisal in hand that could support a lower value than what the county determined. Some assessors, like Arapahoe County’s, provide a list of sales they used to support the valuation. A property owner might feel there are other sales that match up better and support a lower value. A real estate agent with access to the multiple listing service can help track down those sales. But again, any sales must be before June 30, 2016, and the closer the better. If I think I’ve got a shot, now what? If you’ve decided that a protest is worth your while, you can either file in person at your assessor’s office, by mail or, in most metro-Denver counties, online, at your assessor’s website. Regardless of how you do it, remember that your protest is due by June 1. My protest didn’t get me what I wanted. What are my next steps? If a protest is turned down, or the property value not adjusted as much as the owner requested, those decisions can be appealed before a County Board of Equalization. In most counties, assessors must rule on a protest by the end of June and property owners can appeal to the CBOE by July 15. In more populated counties like Denver, Boulder, Douglas and Jefferson, assessors have until the end of August to rule on protests, with appeals due by Sept. 15. There are two venues for another level of appeal beyond the county boards, and those are the district courts or the state Board of Assessment Appeals. Not many homeowners, however, go that far. What else can I do to reduce my tax burden? Homeowners age 65 or older who have lived in a home for 10 years or longer only have to pay half of the property taxes on the first $200,000 in value. A similar exemption is also available for permanently disabled veterans. Also, some local governments and school districts can help some homeowners who want relief with their tax burden. If you’re disabled or age 60 or older, you can trade volunteer hours in lieu of taxes in what are called property tax work-off programs. By: Aldo Svaldi
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Colorado’s system of real property taxation can leave homeowners confused and frustrated. This may be especially true if a homeowner receives a Notice of Valuation reflecting an unexpected increase in the value of his or her home which results in an increase in taxes owed. This article will provide an overview of the process by which property values are determined for the purposes of taxation and the options for homeowners who believe their properties have been incorrectly valued. Colorado has a two year cycle for valuing real property for the purposes of assessing property taxes. In odd years, properties are revalued; even years are considered “intervening years” and properties are generally considered to have the same value as in the prior year. In intervening years, notice of the value of property is often contained in a short form along with the property tax statement issued in January. However, in odd years assessors are required to mail a Notice of Valuation, or NOV, to taxpayers by May 1. The NOV must include the actual value of the property as determined by the assessor’s office and the assessment rate that applies to the property (explained in further detail below). It may also include an estimate of the taxes owed for the current tax year.How does the county assessor determine the amount of property taxes owed?The amount of taxes owed is determined by using a statutory formula. First, the assessor must determine the actual value of the property. To do this, the assessor estimates the market value as of the appraisal date, a date that is set by statute as June 30th of the prior year. The market value is determined by reviewing property sales taking place within the “study period” — generally the 2 year period prior to the appraisal date. For the 2015 tax year, for example, the study period is from July 1, 2012 through June 30, 2014, and no sales that took place outside this timeframe are considered in the valuation of the property. Once the actual value is established, the following formula is used to determine the amount of taxes owed: (Actual Value x Assessment Percentage) x Mill Levy = Taxes Owed The assessment percentage is determined by how the property is classified — for residential property, the percentage is currently 7.96% and for commercial property it is 29%. For further explanation and some examples of this calculation, please see this useful link from Douglas County. Errors may occur in any of the three numbers used to determine the taxes owed. For example, if there has been a change in use for a particular property, the assessor may use the 29% assessment percentage in calculating the value of property that is actually residential and should be assessed at the 7.96% rate. Less commonly, an incorrect mill levy may be used in the formula. However, it is most common for property owners to contest the actual value of the property as determined by the assessor.What can I do if I think the valuation is incorrect?There are two routes that taxpayers may take if they believe there was an error in determining the amount of taxes due. A taxpayer may follow the protest procedure or the abatement procedure, each of which is described in more detail below. Protest Procedure. Under the protest procedure, a taxpayer who receives an NOV that he or she believes to be an error may file a protest with the assessor no later than June 1 of the year that the NOV was received. The assessor has until the last working day of June (or August if the county has opted for an extended appeal process) to issue a decision, called a Notice of Determination (NOD). If the taxpayer disagrees with the NOD, he or she can then appeal to the County Board of Equalization (CBOE) by July 1 (or September 15 under extended appeal process). The CBOE usually consists of the County Commissioners for the county in which the property is located; however, some larger counties use hearing officers rather than the Commissioners for this process. An informal hearing, usually less than 30 minutes, is held and a decision is made by August 5 (November 1 for extended appeal process). The taxpayer then has 3 options for appealing the CBOE decision. An appeal may be filed in district court, with the Board of Assessment Appeals (BAA), or through binding arbitration. About 90% of these appeals go to the BAA, and appeals to the BAA must be filed no later than 30 days after the CBOE decision was mailed to the taxpayer. Abatement Process. In lieu of the protest procedure, a taxpayer can file an abatement petition with the Board of County Commissioners for a prior tax year. Generally speaking, a taxpayer has 2 years from the year in which the taxes were levied to file an abatement petition. (for the 2015 tax year, file no later than January 2, 2018). If the request is for an abatement of over $1,000, the Board of County Commissioners must hold a hearing and act on the petition within 6 months. If the petition is granted for over $1,000, the taxpayer will get an abatement (a reduction of taxes owed) or a refund of taxes already paid along with statutory interest (currently 12%). If the petition is denied, the taxpayer may appeal to the BAA within 30 days of the decision, but does not have the options of arbitration or an appeal to district court which are available under the protest process. If the basis for the abatement is overvaluation, the taxpayer can NOT file an abatement petition if a protest was filed. It is important at the outset to carefully consider which process to follow; if a protest is filed and denied, a taxpayer will be unable to later file an abatement petition.Which option is better — protest or abatement?Each process has its own benefits and downsides which must be considered in making a decision about which route to follow. Generally speaking, the protest procedure is “forward-looking” in that it focuses on taxes that have not yet been paid but that will be due in the future. Under the protest process, taxpayers may choose among three different appeal options if the initial protest is denied, while there is only one process for appeal (BAA) under the abatement process. In addition, the protest process can allow for a quick resolution of issues before a tax bill is mailed, giving certainty and finality to the taxpayer before taxes are even due. Finally, if a taxpayer files a protest and it is denied, the taxpayer is precluded from later using the abatement process to recover overpayment of taxes with interest. In contrast, the abatement process is “backward-looking” and deals with the abatement or refund of taxes already due and often already paid by the taxpayer. The abatement process gives taxpayers two years post-assessment for the abatement or refund of taxes, while a protest must be filed within a very short time of receiving an NOV. In addition, if the abatement process is used, taxpayers may have the added benefit of collecting statutory interest if taxes have already been paid and are refunded, and this can be a considerable amount of money in some circumstances.ConclusionThere is no one-size-fits-all solution for all taxpayers regarding the best way to address a valuation that is considered incorrect. Taxpayers should consider their circumstances carefully in making a decision about which option would be best. The brief overview provided in this article is intended to provide general information only and does not constitute legal advice. In making these important decisions for yourself, it may be helpful to consult with a professional for advice. Please feel free to contact me for assistance in choosing a route for disputing an incorrect valuation or other issues related to your property taxes. References: Gunning, Robert R. Property Tax Litigation Before the Board of Assessment Appeals, 35-AUG Colo. Law. 87 (2006). For questions regarding this article please contact Jon Goodman.
A major tax advantage for the real estate industry may be one of the casualties in a sweeping federal tax reform expected this year. Some lawmakers are eyeing the 1031 exchange provision to get the tax-rate cut they seek. The provision allows sellers of real estate and other assets to defer capital gains taxes by reinvesting any profit in “like-kind” properties. The 1031 exchange applies to a range of assets, but real estate accounts for the largest portion of exchanges at 36 percent. The Joint Committee on Taxation estimated in 2014 that repealing like-kind exchanges could raise $40.6 billion in extra tax revenue over one decade. Several lawmakers consider the provision to be loophole that has limited economic benefit and, therefore, some are looking to put it on the chopping block in order to pay for lower tax rates. Any threat to 1031 exchanges would cause a lot of transactions not to occur, and investors who purchase real estate through 1031 exchanges are more likely to invest in those properties than those who pay cash. “Therefore, you have capital you can now put into the newly acquired property.” The House Ways and Means Committee has yet to release a bill on the matter, although The Wall Street Journal reports that the chatter among lawmakers on such legislation is growing. |
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