Know the Facts Before You Decide to Rent Your Home
More and more people frustrated by the real estate market are choosing to rent their homes instead of selling at today’s low prices. This may be your situation, especially if you have relocated for job reasons or you have a second home.
Many people faced with this dilemma ask “If I rent my home will this affect the real estate taxes I pay?” Unfortunately the answer doesn’t have a straightforward yes or no answer. It depends on the state you live in and the local property assessment and tax ordinances in your community.
There are two considerations that can affect the real estate taxes you pay each year on your property: (1) whether the assessed value of your home will change; and (2) whether you will no longer qualify for an abatement, deferral, or exemption that reduces the assessment or tax amount due each.
Assessed Value
Most real estate assessors will continue to value your home as a residential property even if you decide to use it as a rental property. Technically speaking the property will change from being and owner-occupied home to a rented home. However the assessor’s job in most states is to estimate the market value (sometimes called cash value, fair market value, true cash value, etc.).
Market value is generally estimated from the viewpoint of the typical buyer. And the typical buyer of a residential property attributes value to the property for the primary reason of occupying the home. A majority of homes that sell in most neighborhoods reflect the purchasers desire to occupy the home, not rent it. Even if the assessor wanted to value your home as a rental property there may not be sufficient comparable rentals in your neighborhood to develop an accurate estimate of value using this approach.
Abatements, Deferrals, and Exemptions
Some states, but not all, have programs where a qualifying homeowner can get an assessment reduction or real estate tax deduction if they occupy their home. If you no longer qualify for this special treatment because you no longer occupy your home your real estate taxes could increase. Qualifications vary by state, and sometimes even by taxing jurisdictions within the same state. For example, in some states you have to be age 65 or over to qualify. In other states you don’t qualify until you have owned your home more than three years. In some states your assessment reduction or tax reduction is based on your household income. What most states have in common is that the home must be your primary residence (this definition can vary) and be owner-occupied.
To find out about tax abatements, deferral, and exemptions in your area call your local assessor. Explain that you are considering renting your property and that if you do you want to know how the assessment and real estate taxes may change.
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