Finishing your basement will increase the value of your home by 70 percent of the remodeling costs, according to Remodeling Magazine. But that doesn’t mean your property taxes will go up by that amount. In fact, it doesn’t mean they will go up at all. How local assessors determine tax assessments varies widely and focuses on a variety of factors.
Property Tax Standards
Property taxes, which are levied in all 50 states, are determined by multiplying a property tax rate by the assessed value of your property. There may be different rates for different taxes, such as for a school district, city or county. Tax rates may be changed by local or state legislation or other action as determined by state law.
Properties are assessed by a county assessor according to guidelines determined in state legislation. Most states, according to a study published by Purdue University, use a standard of assessment that focuses on a market price paid for the properties. Others use a defined method of assessment aimed at what is called “fair market value.” Assessments are generally made annually.
Interior Inspections and Permits
Many assessors look only at sales records for properties when determining assessed value. They may look at the sales price of the property in question and then raise that price yearly by some factor. They may also look at the sales prices of similar properties to come up with an assessment of your property. Some states authorize or at least allow assessors to require interior inspections and/or review building permits to determine value of a property. It is only in a jurisdiction that uses those methods to assess a property that will specifically base an assessment on improvements you have made since purchase, such as basement finishing.
It is important to understand that once your assessment has been made, many jurisdictions make subtractions from the assessed value before multiplying it by the tax rate to determine your tax liability. These subtractions are called exemptions. In many states and counties, certain exemptions are offered to homeowners for their personal residence, for the elderly and for the disabled or economically disadvantaged.
- Remodeling Magazine: Remodeling Cost Value Report 2010-1011
- Purdue University Department of Agricultural Economics: Property Assessment Standards in the United States; Larry DeBoer; January 2000
- Retirement Living Information Center: Taxes by State
- Internal Revenue Service. "4.48.6 Real Property Valuation Guidelines." Accessed April 10, 2020.
- State of New Jersey. "Property Tax." Accessed April 11, 2020.
- Internal Revenue Service. "Topic No. 151 Your Appeal Rights." Accessed April 11, 2020.
Mary Gallagher runs Mary Gallagher Planning (mgaplanning.com), an urban planning and consulting business in San Francisco. She is the former assistant planning director for San Francisco and planning director for San Mateo. Gallagher has been writing about real estate, development and land use for numerous websites since 1995. She holds a master's degree in historic preservation planning from Cornell University.