Property taxes are determined by two factors: the assessed value of your home, and the amount of tax levied by your local government. Generally speaking, anything that increases your property's market value, such as adding a bedroom, will increase your property's assessed value for taxation purposes.
The Mass Assessment Technique
Unlike home appraisals, property tax assessors rarely visit the properties they assess for taxes. Many local governments assess neighborhoods en masse, using property pricing trends and the data they hold regarding the size and amenities of your home. As values are ascribed according to square footage, as well as other factors, anything that increases the size of your home puts your home in a higher assessment bracket. Higher brackets typically mean higher taxes.
Translating the Assessment to Dollars
Property taxes are local, rather like property values. The dollar increase depends on a number of factors, such as your area, your local government's tax policy, statutory caps on tax hikes or rates, and the degree to which you increase the size of your home. Converting an existing basement, for example, typically leads to a lower tax hike than adding an extension, as the footprint of your house stays the same. Contacting your local assessor's office before or after the construction is the only fail-safe way to ascribe a dollar value to the work.
Feel the Pinch Later
Different municipalities operate different assessment schedules, so your taxes may not be reassessed until the following year or not for several years after you add the bedroom. In some cases, your home may not be reassessed until you sell. Elsewhere, a major home improvement such as an extension can trigger an almost immediate reassessment.
If you're thinking about preserving your existing tax liability by keeping quiet about the addition, think again. Tax assessors in some areas check whether any building permits were filed before reassessing the value of your home -- and you'll always need a permit to add a bedroom. In some areas, building control departments automatically pass copies of building permits to the tax assessor. Carrying out the work without a permit is not the answer. This creates all manner of problems when you are ready to sell or refinance, and leaves you exposed to penalties for code breach.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.