How Do Property Taxes Apply to Vacant Land Investments?

Even land that does not generate an income is liable for property taxes.

Even land that does not generate an income is liable for property taxes.

If you own property in the United States, the government will want a slice of it one way or another. This is true whether you own a residential home or a tract of vacant investment land. Even if your investment is not producing income, your land is still assessed for property taxes. The consequences can be devastating if you don't pay.

Property Tax Assessments

Local government assessors periodically assess all properties within their jurisdiction to determine their value for property taxes. Once assessed, each property or parcel of land is allocated a unique identification number, which catalogs the property in the tax records. The amount of tax a landowner pays depends on the property's assessment. While the method of assessment differs between vacant and built-out land, the process determines the lot's reasonable market value, having regard to local conditions. Property taxes are ad valorem -- according to value -- so the lower the appraised value of the land, the lower the property taxes.

Vacant Land Assessment

Property tax assessments are complex, regardless of the type of property assessed. Vacant land presents a unique challenge. Generally speaking, land is valued according to its highest and best use. This may not be its current use and, with vacant land, anything is possible. The lot could be developed for holiday homes, power plants, a plant nursery or any one of a number of possibilities, depending on zoning, amenities and local laws. Some local governments have adopted special categories for vacant land. Depending on where you live, your land could be assessed as rural, commercial, residential or truly vacant, each giving a different appraisal result. Other factors influence your land's assessed value, such as its acreage, for example.

Penalties for Non-Payment

Whether you live in your property or not, and whether you earn money from your property or not, you are legally required to pay your property taxes. Landowners who fall delinquent face an escalating scale of penalties. Depending on your county or municipality, you can expect fines, interest charges and, ultimately, losing your home to foreclosure.

Tax Benefits

There is some payback for the hapless landowner in the form of a tax offset. Anyone who owns property for investment purposes can deduct property taxes against their rental income. If you have no rental income, you can transfer your property tax liability and other expenses, such as mortgage interest and professional fees, from your vacant tract of land to offset any profit you achieve on other investment real estate.

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