How Do New Construction Property Taxes Work?

Both improved and unimproved land is subject to property taxes. When you start paying property taxes on new construction depends on your deal with your builder.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

How are property taxes determined?

Most places have a specific date each year, such as January 1st, when they determine the assessed value of every property. The assessed value generally won’t change in the middle of the year, even if you build a new house or tear down an old one.

So the question for your annual property tax bill is what’s on your lot as of January 1st? Is it empty land, a finished house, or a house under construction? The value of the home in its current state is usually what will determine your property tax bill.

One thing to note is that some states may not go by land value alone before you build your house. In order to disincentivize people from keeping lots empty, they might set your property taxes based on the fair market value of nearby homes.

When do property taxes start on new construction?

Since all properties are usually taxed, it’s usually not accurate to think of property taxes as starting when you start building or finish construction. What you’re really asking is when YOU start paying or, if you’re already paying, when you start paying a higher rate.

Land You Already Owned

If you’ve always owned the land and are just now building or rebuilding, you’ll continue to pay your property taxes as always. You’re generally required to notify your property assessor that you’re making improvements.

Your property value will be reassessed as of January 1st or whatever the assessment date is in your area. You’ll then see an increase on your next property tax bill.

Land You Buy to Build

If you buy a lot to build on, you’re usually required to pay property taxes as the property owner.

If the seller already paid this year’s property taxes, you’ll settle up with the seller as part of the sale. You’ll then get the next tax bill.

Again, as you build, the status of your property on the annual assessment date will determine your property taxes for the next year.

Land Owned by the Builder

If you’re buying new construction on the builder’s land, the builder is generally legally responsible for paying property taxes until you take title.

Your contract with the builder will determine if you have to reimburse the builder for any property taxes paid during construction.

Again, your home or unimproved land will generally be assessed based on its status on the annual assessment date.

How are new construction property taxes determined?

There are several ways your county government might calculate property taxes on a new home.

If you buy a finished home in a development, the property assessor will often presume what you paid is the fair market value. Another common method is to use the current market value of similar homes in nearby areas.

When your home is in the middle of construction on the assessment date, it can get a little more complicated. It might be the percent of completion times the completed value. For example, if a $200,000 house is 50% done, it might get assessed at $100,000.

Since valuation methods vary by location, you’ll need to look up the rules for your local government.

Keep in mind that if you disagree with your property’s assessed value, you usually have the right to appeal and show evidence of what you believe the value should be.

What if you have property tax benefits on your old home?

Many states have property tax laws that cap how much your home’s assessed value can increase each year even if its fair market value goes up by more. Examples include Florida Save Our Homes and California Proposition 19.

In many places, you can transfer property tax benefits from your old primary residence to your new one.

For example, if you’re in Florida and have a $100,000 reduction in your assessed value from Save Our Homes, you can usually apply that $100,000 reduction to your new home.

There are often limits such as how long you have to move into your new home, so be sure to check your state’s specific rules for details.

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