Idea: File a property tax appeal for each property that you own.
Benefit: This gives you tax savings, which can be several thousands per year (saving continues each year, AND the saving is several times more if you have several houses). If you get an attorney to do it for you, there is almost no work on your part.
Next Step: Consult an attorney who does tax appeal for clients regularly.
We all have a lot of bills to pay. This is especially true for real estate investors, from insurance to utilities to maintenance to property tax etc. Depending on where you live, property tax can be one of the largest expenses in owning a house. This is definitely true for me. I live in New Jersey, one of the most property-tax-heavy states in the US. For example, for some of my properties, the original property tax can go as high as 25% of rental income that I collect. That is BEFORE all the income tax that I pay each year. Note that I highlighted the word “original”.
While property tax is a major expense for most people, very few real estate investors included, know that property tax can be appealed and reduced. I often come across the property tax info as I look for potential houses to buy. I always find it strange that how one property pays $6,000 per year in property taxes and its near-identical neighbor pays $8,000. I find it even more absurd that the person who pays $8,000 doesn’t do anything about it!
You can reduce your property tax. A dollar saving is a dollar gain right?
Property Tax Basics
I’ll keep it brief here. Tax laws may be different from town to town, but this basic principle of property tax should be similar no matter where you live.
All in all, we can summarize the strategy of property tax saving into a single sentence.
You can reduce the property tax if you can convince the tax authority that your property is overvalued. Both sides can then agree to a new, fairer, and lower property value.
You pay your property tax based on a certain percentage (aka tax rate) of your house’s worth. In other words, the tax is influenced by two factors: the tax rate and house‘s worth.
The tax rate is usually set by the government and standard for all properties in the same area. Because of this, there is nothing much we can do about the tax rate.
Meanwhile, the house’s worth is much more subjective and open to interpretation. Who can definitively tell you whether the house is worth $500,000 or $600,000? It is okay to think the property is worth less. Here, you are not bragging your nice house in front of your neighbors or your relatives. In the tax department’s eyes, you want your house to be worth at the lowest, fair value. The lower the house is worth, the lower the property tax is. This is where the tax saving comes from.
So challenging property tax boils down to challenging what the house price should be.
What to Do Next?
If this is your first time challenging property tax and you are unsure or do not want to bother how the process works, I suggest to consult with attorneys. Two important points:
Get an experienced tax appeal attorney. Some attorneys do tax appeals regularly and they see tax appeals as bread-and-butter cases. Why? Quick and easy money to them! You can easily find them either by asking your fellow real estate investors or even do a quick Google search in your area. Ask the attorneys for their prior experiences and the number of tax appeal cases they have done in the last couple years.
Get a profit-sharing attorney. Hire an attorney whose fee is based on the amount you save. That way the attorney has more incentive to maximize your savings. Another way of looking it: If the tax saving is not juicy enough to you, it won’t be juicy enough for the attorney to take your case either. The attorney essentially becomes your gauge whether or not to do a tax appeal to begin with!
Tax Appeals, compared to other court cases, are much more straightforward processes and results (tax savings) are quite predictable.
Out of convenience, I too hired my attorney to do tax appeals for my properties. He charges half of my first-year tax savings plus some small filing fee ($30 or so). As an example, one of the properties which I have recently appealed has a tax savings of over $4,200 per year and the saving lasts at least 3 years.
In total, I expect a net tax saving of at least $10,000 or more ($2,100 after attorney fees for first year, $4,200 each for second and third year, more if tax stays the same). My attorney does it all on my behalf.
Speaking of no work and thousands of dollars, I will take it!