As a homeowner, you may have recently received your property tax assessment in the mail. This past week, Ada County Public Information Officer Kate McGwire released a statement regarding assessment notices saying, “It is no surprise Ada County is one of the fastest growing areas in the nation. Those of us lucky enough to call Ada County home are experiencing the greatest market appreciation since the end of the Great Recession. Median value increases for many neighborhoods are in the double-digits this year. With this upward trend in values comes understandable concern about its effect on property taxes. It is a common misconception that property tax burdens change directly in proportion to property values. Idaho’s property tax system is budget-driven, not rate-based, and state law generally limits taxing districts’ authority to increase their budgets. In Idaho, the allowed budget increase is 3%, plus a growth factor, which captures new development.”
This restriction prevents taxing districts from realizing a windfall during periods of market appreciation. Conversely, this limit also preserves the consistent delivery of property tax funded services (like law enforcement and fire protection, emergency services, road maintenance, and other essential services) during periods of market decline. Budgets are established first and approved through a public hearing process. Once budgets are finalized, levy rates are calculated and then certified for each tax code area by the Idaho State Tax Commission. The comparable examples below illustrates the indirect relationship between assessed values, tax levies, and taxes:
2016 assessed value: $250,000
Median tax levy: .011413132
Tax due: $2,853
2017 assessed value: $275,000 (+10%)
Median tax levy: .010932278 (-4.2%)
Tax due: $3,006 (+5%) (this two-year comparison shows the downward pressure an appreciating market has on tax levies)
While the amount of property tax due still went up, it was not to the same extent as the assessed value increase. The key to understanding calculations in a budget-driven system is that tax levies adjust to meet the budgetary requirements of taxing entities; property assessments are adjusted only to meet the 100% market value standard that is required by law. The primary objective of the Assessor’s Office is the fair valuation of property. This ensures an equitable distribution of property tax burdens between owners. The individual taxing districts have budget setting authority, and control the magnitude of your property tax. Levies are not approved until October, so tax levies can only be estimated at this time. Homeowners are encouraged to use the Idaho State Tax Commission’s property tax estimator which will be available online in early June (www.tax.idaho.gov).
It’s important to note that one of the biggest mistakes you can make after reviewing your tax assessment is assuming that the assessment is an accurate appraisal of your home. Taxpayers require services and taxing authorities need revenue to provide these services. Property taxes are a principal source of income for cities and counties and special-purpose governments like fire, schools, library, cemetery and other districts. Taxing authorities set operating budgets, which in turn a tax rate is applied to the value of your property. In Ada County, less than 20% of property tax dollars support county government, while the largest portion of your tax payment supports our schools. (If you’d like to know exactly where your money is going, the tax summary on your property tax bill lists all districts receiving revenue from your property taxes.)
Each year, during the late spring and summer months, the taxing districts estimate the amount of property tax revenue they will require. Public hearings are held to present the budget proposal and to hear public input. Upon completion of the hearings the taxing district budget is amended, if necessary, then finalized and sent to the Ada County Commissioners. The Commissioners review the budgets for verification of compliance with Idaho Code and then submit them to the State Tax Commission for certification.
There are currently about forty taxing districts drawing revenue from property taxes collected in Ada County. Within each of those districts different levies are in place, so don’t assume your taxes are the same as someone with a similar home to yours a mile down the street. You could pay more or less than another homeowner with the exact square footage as your property—depending on the location of the home and the levy within the district in which you live.
The current assessment process requires Idaho counties to physically appraise all properties every 5 years. In the intervening years, the counties are required to do adjustments. The assessor uses three methods to value homes:
- Annual updates. Every year, the county updates your home's value based on the price of similar homes in the neighborhood (this is called trending).
- Five-year updates. These are more detailed than the annual updates. Once every five years, a Deputy Assessor walks by your property to determine if there have been any obvious additions, improvements or anything else that would affect your home's value, such as the condition of surrounding homes.
- Citizen feedback. The county assessors don’t have the time or manpower to accurately determine any material changes to a property, so they can rely on information from you or your neighbors.
The county’s assessment of the value of your home is more than likely higher than last year but not necessarily the precise valuation of your home. When a real estate professional creates a report of value for your home, they spend hours reviewing the data that may affect value. Walking through the home and factoring in upgrades can make the property worth thousands of dollars more than just viewing the exterior by doing a drive-by. Recent neighborhood sales, perceived desirability, and other important details all work together in creating a full and complete picture of true market value. Additionally, if you have a new construction home, it might make more sense to not state the price you paid for the home when filing for your homeowners exemption. Instead, allow the county to assess your property and see if the assessment comes in lower than what you paid for it. It’s to your advantage to not contest this, as your tax bill will be lower than if you had initially stated the purchase price. (If you haven’t filed a homeowners exemption, do it right away, as your taxes will be lower because your taxable value will be less.)
It’s not necessarily a bad thing if the county assesses your home for slightly lower than you believe it’s worth in this market. You don’t need to contest their determination of value (because you’re paying lower taxes because of it). Don’t worry about the possibility that potential buyers won’t agree with your asking price—this is why a professional appraisal is ordered during a real estate transaction. If you’d like to know what the current market value of your home is, give us a call. One of our knowledgeable agents will be sure to consider all of the important variables that are taken into account to help you determine what your home is really worth.