How to Protest Your Rental Property Taxes

You may have recently received a notice of change in assessed valuation of your property from the county assessor, most likely increasing the assessed fair market value (FMV) and hence, your property taxes. Or perhaps your assessed value didn't change, but you feel that the current assessed value of your property is simply too high.

For all practical purposes, this is a good thing! It means the value of your property is increasing in the eyes of the assessor.

However, you may want to protest the assessed market value of the property on the basis that your property is a rental. In our experience, county assessors have been open to the argument that rental properties do not have the same value as a comparable retail, owner-occupied, move-in ready home. We have had good success getting the assessed value lowered, and thus decreasing property taxes, sometimes significantly.

Remember, you can't actually protest your property taxes, so don't send the assessor a nasty gram saying "My property taxes are too high!". You know what they say about death and taxes - they're both inevitable. What you can protest is the assessed value of your rental property. Focus on making the argument that your property is not worth what the assessor thinks it is.

You can usually find the protest form on the county assessor's website or by searching the internet for "XXXX County Assessor Protest". Please note that there are typically time limitations on when you can file a protest. You should review the instructions included with the form to ensure your protest is filed within the time limit specified.

You may find 4 types of arguments particularly useful:

1.) The property is not in the same condition as a retail, move-in ready, owner-occupied home. The assessor typically uses comparable sales data in the same neighborhood as your property to derive the assessed value. Most of these comparable sales are owner-occupied sales, not rental properties. Rental properties are often less cosmetically appealing than owner-occupied homes. The carpet may be older, the paint may not be as fresh, the exterior might need painting, etc etc. It can often cost $10,000 or more to paint and re-carpet a house. Make sure to include an estimate of how much it would cost to bring the property up to retail, move-in ready, owner-occupied condition, IE "My property would require new carpet and painting costing $10,000 to bring it to a retail, move-in ready condition."

2.) The property has sustained damage in the past or has major deferred maintenance. If your foundation has had issues or there has been a fire in the property at some point, the assessor probably doesn't know about it. Use the protest to inform them of these value-lowering issues, IE "In 2013, the foundation was inspected and found to have settlement requiring 10 piers at an estimated cost of $5000". Even if the repair work was done, the property most likely has a lower value when compared with a similar home that doesn't have the damage. Include an estimate of the impact you think the issue could have on market value, "I believe the market value of the property is lowered by $5,000 because of the issue with the foundation."

3.) Perhaps the best way to dispute the assessed value of your rental property is to find comparable sales data demonstrating a lower valuation. Maybe the house down the street that sold recently was also a rental property and you know the sales price (hint, try Zillow.com and look for "recent sales"). You want to show similar properties that have sold for less than the current assessed value of your property. Or you may find a very similar property that sold for the same amount as your property's assessed value, but it has more features, is in better condition, etc. Point out the differences between your property and the recently sold property, emphasizing why your property should have a lower valuation than the comparable sale.

4.) The monthly rental value can also be used to support a lower valuation, but you must do this with care. Assessors can then take the monthly rental value and use the income approach as a valuation method. However, if you have a property with a low value that gets a healthy monthly rent, this argument may backfire. The income approach can be useful to protesting valuations if you have a property with a relatively higher market value that gets a relatively smaller monthly rent as a percentage of value.

Good luck, and happy protesting!