How Property Taxes Go Up by Adding a Bedroom

That new bedroom could bring a new property tax bill.

That new bedroom could bring a new property tax bill.

Adding a bedroom to your house doesn't just make room for a guest or another family member. It also usually makes your house more valuable. However, when you add value to your house, you're not the only one that benefits from it. Many communities will also adjust your property tax upwards based on the new value you created.

The Assessment Process

Your property taxes are based on the value that your local assessor or tax collector assigns to your house. Sometimes local laws may limit how much he can increase the value or how much value can be taxed. However, even in states where values can't automatically go up, you can usually get hit with an increase if you actively do something to your house that makes it more valuable. As such, your new bedroom will probably eventually catch up to you.

Timing

The timing of when the increase hits is a matter of your state's law. Usually, you won't get assessed until the next tax year. Some communities do assessments for multi-year periods, so they will wait to increase your value. The other factor that can impact when you have to start paying taxes is when the assessor finds out about your new bedroom.

Construction Permit

Assessors frequently find out about new bedrooms because they get information from local building departments. If you pull a building permit, it will contain basic data about your project. Since building permits are frequently matters of public record, the assessor can pull the permit, find out what you're doing, wait for the final inspection to know it's complete and adjust your value accordingly.

Keeping It Quiet

One way to avoid paying property taxes on your bedroom addition is to keep it quiet. If you do your work without paying a permit and your community's assessor doesn't come to inspect, it may not ever get noticed. However, choosing to go this route can have some unintended consequences. If you'd like to be able to advertise your house as having the additional bedroom, you may need to make it legal by pulling, and paying for, a permit after the fact. Furthermore, if the work isn't done to the standards of the code, you could end up having to redo it. In the long run, this could cost you more. You could even get discovered if the assessor finds out about the work and lets the building department know that you didn't get a permit.

 

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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