Some businesses thrive in a converted residential property. Business owners might turn their home into their business’s home if they’re looking to move, are underwater on their mortgage, or for any number of other reasons. Relocating your business to your home can have a number of financial implications, including how much property tax you must pay on the house.
Property Tax Calculation
The amount that you pay in property tax is calculated by multiplying the assessed value by the tax rate. State and local governments set the tax rate. The assessed value can change year to year, as the fair market value of the property changes and the assessment rate changes. If your home transformation lowers the residential value of your property, you could lower your overall property tax bill. Substantial interior remodeling that makes the home less attractive as a residential property, such as a reception counter in the entryway, could persuade an assessor that your home is worth less as a residence because of its current use.
Reassessing Property Value
Because property taxes are administered by local governments, there’s an insurmountable variety of rules and procedures different assessors’ offices use in setting the value of your property. Many conduct their own assessments every few years, which could mean your home is still valued at residential use several years later. Contact your assessor’s office to learn the procedure for reassessing your home, and how your assessed value is calculated.
Before you can move your business to your home, you need to check the zoning ordinances and see what restrictions apply. Most homes are zoned residential, with ordinances limiting the amount of parking, visitors and employees at the location. Codes might also restrict modifications and displays, such as billboards. While these restrictions might make your home worth less as a business location, tax law might only let the assessor value it as a residential property.
Depending on your business, you might be able to downsize and work out of a spare room in your home. A home office likely won’t affect your property value, but might qualify for a federal income tax deduction. The space must be used regularly and exclusively for the business for you to take the deduction. Home office expense includes your office’s proportion, by square foot, of your property tax. While property tax is ordinarily deductible on federal income taxes, including it as a business expense allows you to decrease your taxable income even if you don’t itemize your taxes.
Sean Butner has been writing news articles, blog entries and feature pieces since 2005. His articles have appeared on the cover of "The Richland Sandstorm" and "The Palimpsest Files." He is completing graduate coursework in accounting through Texas A&M University-Commerce. He currently advises families on their insurance and financial planning needs.