Whether you are a commercial property owner or a landlord, you probably have to deal with commercial property tax bills from time to time. However, if you have a commercial property, you may be able to take advantage of some tax advantages.
Assessor’s value is just a guesstimate
Having an estimate of the value of your home or commercial property is a necessity. It can mean the difference between paying too much or too little in property taxes. It’s also important for maintaining equity among taxpayers.
Assessors use three methods to determine market value. The sales comparison approach looks at many similar sales. Size, quality, and time of sale are important factors in this analysis.
The Department of Finance uses a different calculation for property values. It uses a ratio between the estimated market value and the level of assessment to determine the fair market value of a property.
The Assessor’s Office estimates market value for tax purposes each January. It does this using a combination of mass appraisal techniques. It also uses data from thousands of inspections.
Assessor’s cost approach to value is considered the least reliable method of valuation by licensed appraisers
Whether you’re a property owner or an appraiser, you need to know what approach your county assessor uses to value your property. There are three approaches: the cost approach, the income approach, and the sales comparison approach.
The cost approach, or “replacement cost” method, is used to determine the value of a property. It subtracts depreciation for physical deterioration, functional obsolescence, and age from the original cost. The result is an estimate of the depreciated cost of reproducing the building. The value of this approach is often more accurate for newly built or renovated property than older construction.
In the income approach, appraisers calculate the value of a property by multiplying an estimated gross income by a multiplier. This value is then applied to a fair market rent. This approach is also used by appraisers for property tax assessments.
Expenses of owning a commercial property may qualify as tax deductions
Buying a piece of business real estate, whether it’s an office building or a warehouse, can give you the opportunity to take advantage of various tax deductions. Taking the time to understand the tax rules can help you get the most out of your investments.
Investing in a piece of real estate can also allow you to claim tax benefits, such as depreciation and property taxes. Knowing which deductions apply to your situation can make a big difference in your bottom line.
The IRS allows commercial property owners to depreciate their properties over a period of 39 years. This will allow you to save a good chunk of change in taxes.
You can even depreciate long-term business property, such as computers, desks, and vehicles. It’s important to note, however, that these items must be spread over the asset’s lifetime to qualify for the tax benefits.
Challenge an unequal appraisal
Trying to challenge an unequal appraisal of commercial property is a complex affair. The first thing to do is find out which jurisdiction is responsible for assessing the property. Once that is out of the way, you’ll need to determine what the best approach is. You can argue for equal and uniform taxation, but you’ll have to weigh the tradeoffs between a fair market value and paying more taxes.
The top-of-the-line approach is to have an independent property appraiser assess the property and provide you with an accurate value. You can then challenge the appraised value on the merits. You may be surprised to find out that the same property can be assessed at different levels by the same appraisal district. This can lead to higher assessments on properties you may own or use.