Paying a property tax is integral to being a homeowner. Whether you have a barndominium or a traditional home, you must pay property taxes yearly. If it is your first time owning a house, taxes can be confusing, and it is crucial to arm yourself with knowledge about them to ensure that you are paying the correct amount every year.
This article explains barndominium taxes in detail, how they are computed, and what to do if you believe you got taxed erroneously.
Table of Contents
Do You Have to Pay Taxes on Your Barndominium?
Yes, in most cases, you need to pay taxes on your barndominium. We say in most cases because there are instances when a homeowner may be exempt from paying barndominium taxes, and we will discuss those later.
Barndominiums are considered residential properties, so you’ll be paying property tax like other residential structures, for example, conventional houses, townhouses, shipping container homes, and shouses.
How Does Property Tax Work?
A property tax is a tax paid by the owner of a property. The owner can be an individual or, in the case of commercial structures, a corporation.
Although most people use the terms interchangeably, property and real estate taxes differ. A real estate tax is a type of property tax that only applies to real or immovable property, like land or buildings. On the other hand, property tax applies to tangible personal property or those you can touch, like equipment or furnishings. Unlike real properties, you can relocate tangible personal property.
Property taxes are some of the oldest taxes in the world. There was evidence that property taxes existed in ancient Greece, Egypt, and Rome. England has had property taxes, through its Land Tax, since the 18th century and introduced them to its colonies in North America, including the present-day United States.
The United States implemented changes to England’s Land Tax, resulting in the General Property Tax. The GPT is a comprehensive way of levying taxes on all properties, including personal and financial wealth. It also taxes real estate and real assets.
Where do property taxes go? Property taxes fund the public services that your local government provides. They use it to pay for your county’s streets, roads, and schools. Property taxes also pay for the salaries and operation expenses of your county’s police and fire protection services.
How are Barndominiums Taxed?
As mentioned, barndominiums are residential properties, so they get taxed like traditional houses. You can determine the amount you owe in property taxes by multiplying the property tax rate in your area by the assessed value of your barndominium.
How do you compute your property’s assessed value? You can get the assessed value of your property by getting your property’s market value and multiplying it by the assessment rate. The assessment rate is a fixed percentage, usually between 80% and 90%, and is set by your local government.
How do you find the property tax rate? This is tricky because the property tax rate changes depending on your location. New Jersey has the highest property tax rates at an average of 2.21%, while Hawaii has the lowest at an average of 0.31%.
It gets even muddier since counties within the same state have different property tax rates. For example, the property tax rate in Fort Bend, Texas, is 2.48% of a property’s assessed fair market value. Fort Bend has one of the highest property tax rates in the entire country. In contrast, the property tax rate in Terrell, Texas, stands at 0.67% of a property’s assessed fair market value.
Since paying property taxes becomes a lifetime obligation, it may be best to build a barndominium in an area with low property taxes, as this can result in a lifetime of savings.
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However, a common mistake is looking at the average property taxes instead of the property tax rate. Remember that the average property tax that a county collects is the average of all properties in the said county, from single-family houses to huge and opulent mansions. The best thing to do is to look at the property tax rate that the county levies. Barnominiums often have lower assessed fair market values, so you will pay a lower property tax.
Can You Appeal against a Tax Assessment on Your Barndominium?
Yes, you can appeal against a tax assessment on your barndominium. Your local assessor’s office will send you a valuation notice indicating the valuation of your property and the amount of tax you need to pay. If the amount is in order, then you need to pay it. But what if you believe that your property’s valuation is too high? If this is the case, you can file an appeal to challenge the valuation and possibly get a lower tax bill.
There are several reasons why a homeowner will receive a high tax valuation. The best way to determine the reason is to get an itemized list of the properties included in your valuation. The said list is what the assessor used to determine the valuation of your property.
One reason is that the valuation includes items you no longer own. For example, if you have a workshop in your barndo that you recently closed, you might have sold off equipment that was still considered during the valuation. Or let’s say your workshop still exists and your plasma cutting table needed replacement, so you bought a new one. Your valuation might include the new plasma cutting table and the old one you no longer own. This will cause your valuation to be higher.
Another reason is if your valuation includes assets that don’t belong to you. If you are leasing a piece of equipment for your workshop or home use, the said equipment is in your possession, but you don’t own it. The leasing company is the one responsible for paying taxes on it. For real property, the records in the assessor’s office may not yet be updated to reflect a change of ownership for real estate. Let’s say you recently built your barndo and sold your old house to finance it. The records may reflect that you’re still the owner of the recently-sold property and responsible for paying taxes.
Clerical errors can also result in an inaccurate valuation. Some of the property details that might be inaccurate include the construction year of your barndo, the total land acreage, and the total square footage of your barndominium. While clerical errors can result in a higher valuation, they can also result in a lower valuation. Although a lower valuation means you will pay lower property taxes, it can also hurt you. If you apply for a loan and use your property as collateral, it will have a lower value, so you will be entitled to a lower loan amount.
How to Write an Appeal Letter
The first step in contesting an erroneous tax valuation is to send an appeal letter. This letter serves to notify your county that you are contesting your tax valuation. In most states, the letter should be addressed to the appraisal review board or ARB.
You don’t need a complicated appeal letter, but you need to keep it formal. It is best to keep your letter straightforward. Although you keep it simple, some elements must be present in your letter. You must include phrasing indicating that you are sending a formal notice of protest. Your letter should also indicate the account number or account numbers that you are protesting. Needless to say, you need to include the reasons behind your protest. State if the valuation included items you don’t own or if there are clerical errors. Lastly, you must ensure that the letter contains your name and signature.
Take note that not all states entertain tax appeal letters. States like Georgia, California, and Texas require that you complete an official notification form. It is also important to note that you only have a small window to contest a tax valuation. This is typically 30 to 45 days after receiving the valuation letter. Since it might take time to verify if your valuation letter contains errors, it might be best to send a letter while you research. If you find out later that the valuation is accurate, you can withdraw your appeal.
After sending your appeal letter, all that’s left is a response. The response can be a communication assigning you a case or an appeal number. Some counties are more straightforward and immediately send a scheduled hearing date and time. An immediate hearing can be beneficial if you have your case laid out but detrimental if you are still gathering evidence for your appeal. Unfortunately, there’s no way to tell how much you will have before a hearing.
Some counties schedule hearing in as little as 30-45 days, while some states schedule hearings after a few months. This depends on the number of appeals the county needs to handle.
What Happens If a Barndominium Tax Appeal Letter Doesn’t Work?
Not all appeal letters elicit favorable results; some get rejected. If the appraisal review board (ARB) denies your appeal, the next course of action is to appeal against the decision. Since the ARB has already decided on your initial appeal, your case will be forwarded to the state district court with jurisdiction over your property.
Another option is to appeal for binding arbitration. A binding arbitration is only possible if your property is considered a residential homestead. You can also ask for binding arbitration if your residential property has an appraised value of $5 million or less.
Tips to Consider for Barndominium Property Tax
Nobody wants to pay expensive property taxes, especially since these are taxes that you’ll be paying every year. It is especially difficult if you have no choice but to build in a location with a high property tax rate. Below are some ways to save on property taxes.
Tax Deduction
Married couples can jointly file their taxes and deduct up to $50,000 of property taxes. If you are single or married but are filing separately from your spouse, you can deduct up to $5,000. Although this will not reduce the property taxes you need to pay, it will reduce your taxable income.
Apply for a Tax Exemption
Tax exemption programs are ways that the government helps property owners by lowering the property tax they need to pay or completely eliminating it. Some exemptions apply only to commercial property owners, and some apply to residential owners. The rules governing tax exemptions vary by state, so check with the local tax authorities to make sure you are qualified for tax exemption. Consult a financial advisor or certified tax preparer to utilize any available exemption.
- Homestead exemptions – A homestead exemption is for taxpayers using a house as their primary residence. It allows homeowners to protect a certain amount or percentage of the value of the primary property from getting taxed. It differs by state, but you can either exclude a percentage of your taxable value or get an exemption for a flat amount. The amount you can protect ranges between $5,000 and $500,000 of your primary residence’s value. Check with your state because some states, like Pennsylvania and New Jersey, have no homestead exemptions. Other states have more extensive homestead exemption coverage for joint property owners and married couples.
- Senior Property Tax Exemption – Most states provide tax exemptions for senior citizens upon reaching a certain age, which is 65 years old in most states. Some states base the eligibility of qualifying for tax exemption based on the applicant’s Social Security Status. States can impose other qualifications, like residency and income restrictions, so it is best to check with your state if you are qualified for a senior property tax exemption.
- Veteran Property Tax Exemption – Members and veterans of the Armed Forces often enjoy some exemptions to property taxes. Like the senior property tax exemption, qualifications may differ per state. In Texas, for example, veterans with a disability rating of 100% are exempt from paying all property taxes, 70 to 100% receive up to $12,000 of property tax exemption, and so on.
- Disability Exemption – Homeowners who are also persons with disabilities can get some relief for a portion of their property taxes. The qualifications vary with counties, and you might need to prove your disability or sign an affidavit attesting to your disability. For example, in the State of New York, a disabled homeowner can get a reduction of up to 50% of the assessed value of a property. If you want to learn other ways to lower your property taxes, join our Facebook group for tips from other barndo owners.
Help the Tax Assessor
Some homeowners deny tax assessors access to their homes. This can be a costly mistake because the assessor might think you’ve made undeclared improvements to your home, like extensive remodels or additional furnishings and fixtures. Some counties automatically assign the highest assessed value to a property when the homeowner refuses to give access to the property.
It will also be helpful to assist the assessor while evaluating your property. There is the danger that the assessor will only see the improvements like a newly-installed kitchen island or new bathroom vanity. The assessor might not notice that some appliances are several years old or that the kitchen countertop has some cracks.
Walk with the assessor to identify your property’s good and bad points. If you used a barndominium kit to build, tell the assessor and explain how using barndominium kits bring down building cost. You can also show the assessor the valuation by your barndominium insurance provider as a reference.
Check the Assessed Value of Similar Properties in Your Area
If you think your property valuation is too high, look for similar properties in your area and check their valuation. The property must have almost the same lot area, square footage, and features.
If you have a 3-bedroom barndominium on a 1-acre lot, with two bathrooms and a workshop, try to find a barndo with the same specifications. You can ask for a copy of the homeowner’s property valuation. Since you are comparing two similar properties, the valuation should also be similar. If your property’s valuation is higher by a large margin, your valuation might be inaccurate.
Conclusion
Affordability is one of the main draws of barndominiums. They are easy and inexpensive to build. However, your savings may suffer if you pay a large amount for yearly property taxes. Familiarize yourself with the property taxes in your area. Find out how you can ensure you are not paying more than your fair share. Ensuring you are paying the correct amount for your property tax means you are doing your duty as a responsible homeowner without sacrificing your hard-earned money. If you want to learn how to build a barndominium or gain insights about the top barndominium builders and barndominium kit providers, make sure to follow our Facebook page.
