Property Taxes Up 54%!

Oh, man! I knew this day was coming. The day when I would open my real estate property tax statement for our rental property and suck the air out of the room.

And suck I did. The property taxes on this rental increased 54% from 2008 to 2009, from $998 to $1,537.

In all honesty I can't say that the dollar increase in our county property tax was a total shock. But it's one thing to have a sense of what's to come and quite another to see it printed on a statement.

Assessment Methods Differ
The reason for my tempered expectations lies in the way our county assesses property quadriannually...a fancy word for "every four years". The assessor's office divides the entire county into quadrants and reassesses property in each quadrant only every four years. In Washington State's 39 counties, 18 assess annually, 1 biannually, 1 triannually and 19 counties assess real estate property quadriannually.

On the positive side, property owners can expect some consistency in their tax bill....for four years, anyway.

Dodging the Tax Bullet...Temporarily
But this assessment method creates some interesting scenarios in quickly fluctuating markets. Take the current real estate market for example: after several years of strong growth, home prices have slumped. (Interestingly, the lower end of the market in this area - around $200k - has held values much better than homes in higher price ranges.) According to Zillow, my property has increased 41% in the last five years. While I was basking in the glow of healthy appreciation, my property taxes remained essentially at 2004 levels. I've been getting a free ride for four years. Sweet!

But wait! Back to Zillow valuation changes. According to them my property value has dropped 1.5% (-18% annualized) in the last 30 days. What if property prices continue to decline over the next four years? Not only will my gravy train have moved on to another station, but I'll be paying taxes on an "inflated" value until 2013. Sucks!

If an owner holds a property long term, this whiplash effect evens out. But this assessment method is killing those homeowners who recently bought property and leveraged themselves to the hilt. A 50%+ increase in property taxes could be the proverbial straw for them.

Photo by Alex Schweigert