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Property Taxes Due Soon

With the first round of property taxes due for most States this spring, real estate investors need to prepare for what is often one of their largest annual expenses. In Indiana, property tax rates have increased substantially over the past few years for investment properties due to changes with the State tax law removing the Mortgage deduction, updates to cost tables used to determine property values, and reassessments by county assessor’s offices.

According to initial reports, many Indiana property owners have seen their 2023 payments (2022 pay 2023) increase by over 10%. These increases are substantial cost burdens placed on top of a real estate market constrained by increasing interest rate and rising ownership costs. To put it in perspective, residential property tax rates only increased by an average of 2.2% across Indiana counties in 2019 according to Indiana Department of Local Government Finance. Commercial and larger investment properties also saw sizable increases. At the same time, the value of properties and rental incomes have not necessarily kept up, squeezing investors’ cash flow.

The good news is there are steps real estate investors can take to potentially lower their property tax bills or appeal unacceptable increases. Here are some options to consider:

•File for an appeal or contest the property assessment. Provide recent sale prices of comparable properties to argue your property is over assessed. This can often reduce the assessment value by 10-30% or more. In Indiana, appeals must be filed by 15 June 2023.

•Check if your county or municipality offers any property tax deductions or credits for things like historic properties, affordable housing, or energy efficient buildings. You may be eligible for substantial savings.

•See if a property tax abatement is offered in your area, such as for renovated or redeveloped properties. This exempts part of the value from property taxes for a certain period like 5-10 years.

•Depending on your State, you may consider moving rental properties to a limited liability company (LLC) or corporation. In some localities rates on personal residences can’t be appealed (though they do typically have a homestead exemption and benefits), commercial entities have more flexibility and legal avenues to challenge taxes.

•Talk to your political representatives about supporting legislation that provides more relief for small landlords and limiting future property tax increases, especially given the removal of the federal mortgage deduction.

•Make sure you are taking advantage of any homestead or other exemptions you may qualify for as a resident owner of investment property. Every dollar of savings helps in today’s financial climate with narrower profit margins.

Property taxes are a reality of being a real estate investor, but with some time and effort exploring various options, you have a good chance of substantially reducing your tax bills this year and for years to come. Please let me know if you have any other questions. I’m here to help in any way I can as you continue building your investment portfolio.

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