Why You Should Read Your Tax Assessment!
Property taxes have been in the news lately because of the new federal tax bill that caps the deduction of property taxes at $10,000. However, property taxes are important in the rental housing business because they are a large expense for most rental housing owners. As Washington state has no state income tax, property taxes are the primary way the state collections revenue (besides sales tax). While you can't entirely eliminate this expense in your business, it's important to keep track of it, as well as, regularly evaluate it for fairness.
Property taxes are based on the value of the property. In King county, buildings are evaluated regularly for their value, as well as, their impact on emergency services, roads, schools and other services. There dozens of taxing districts that rely on these valuations for their tax revenue in our state.
When you are looking at your profit and loss for the year, you have to think about the expenses in your business and that includes taxes. Paying too much in taxes can kill your cash flow. Making sure your assessment is fair, is important.
How can you evaluate it? Find your property tax documentation from the previous year. If you own your building outright, the county sends it to you. If you have a mortgage, the mortgage company usually sends you this information. Once you have that in hand, you can see what the county has for your value and what you are charged in taxes on that value. To see if that value is fair, it's time to do your homework. Looking at real estate listings and see what the price of comparable houses/buildings are in the market. This will give you a clue if your building is being valued fairly or not.
If you find that your building is not valued fairly, you should contact your county assessor's office right away. This is true even if your assessment is lower than the value of your building. By letting it stay below, you can get a nasty surprise in a few years when they finally re-evaluate your property and your tax bill doubles. This is even worse if you have a vacancy at the time!
To make sure that you are properly accounting for taxes in your business, make sure your tax valuation is correct!
Want to learn more about how taxes are calculated? Listen to this episode of Under One Roof with King county Tax Assessor, John Wilson.