As an owner of real estate in Colorado, you’re about to receive in the mail your assessment from the County Assessor, which is of course used to determine your property taxes for the year. Please sit down before you open that one. The increase in value might surprise you – and cost you. Then call me.
First, some history to make homeowners feel a whole lot better.
I had a wonderful thing happen this past year with a client. He found out that a home in Colorado was going to cost him much less than he expected.
We were talking about property taxes. Moving from New Jersey, where property taxes are very high, he wanted to know what the cost was going to be when he bought a home here. It’s always nice to know what you’ll pay for a property before you sign the documents.
The price point he was looking at was around $500,000 and he was ready to pay all cash. The monthly costs of owning a home outside of paying a mortgage was concerning him. After all, he would still pay for homeowner’s insurance, HOA fees, upkeep and property taxes.
I looked up a number of homes in the areas he was looking and showed him on my computer that the taxes would be about $4000, maybe $4500, depending on exactly which community he was considering.
“So about $50K a year,” he said. “That’s higher than I thought, but I guess it is what it is.”
I had the pleasure of telling him that he misunderstood. The $4500 tax amount I gave him was for the year, not one month. You should have seen his face. I could sell that picture on eBay.
His taxes on his $350,000 home in Jew Jersey were $28,000 a year.
Property taxes in Colorado are lower than many places in the country for a reason. It all goes back to 1982 with the passing of the Gallagher Amendment to the State Constitution.
Combined with the Tabor Amendment, here’s how it all works today.
Governments have to budget. They need a certain amount of money to do what governments do. If there isn’t enough money, they have to cut costs, because the public has to approve new expenditures. It’s why we vote during the election cycles to increase the number of mils for education, capital expenditures like building new buildings, etc., fire department expenses, transportation issues and road maintenance costs. Cities get some money, counties get some money, and the list goes on.
Property taxes in great part pay for those costs. If you didn’t pay property taxes, firemen and teachers wouldn’t get paid. New schools would never get built. It’s important, and we all want them to have money. Just not unlimited amounts of money. We as citizens can support the bonds that raise that money -- which we have to pay back over time -- or vote them down.
The County Assessor is tasked with deciding the market value of the real property in the county according to the rules set down by Gallagher. The market value may be determined in a limited number of ways, again only according to the rules in Gallagher. Each property of the same zoning designation is assessed by the same rules, with the goal of determining the fair market value. Those values are then handed off to the County Treasurer.
At this point, the county is divided into three separate worlds – residential, agricultural and commercial. Residential is where people live. Commercial covers retail stores, industrial and office properties. Every property is zoned in one of the three. Agriculture is mostly the rural areas of actively producing farm properties. Most important are the former two. I’ll ignore ag for now.
The intent of Gallagher was to maintain and eventually reduce the tax burden of residential property owners. Following is the tax collection structure that was created.
Commercial property is taxed on 28% of the actual property value. If a building is assessed at $1,000,000, the owner is taxed on $280,000 of that value. Multiply the number of mils that the voters have approved, and you have the yearly taxes that will be billed the property owner by the Treasurer.
Residential simply pays for the remainder of what’s needed to meet the budgets. If 1/3 of the tax monies are covered by commercial, residential needs only cover the remaining 2/3. Whatever commercial covers, residential must cover the remainder.
What’s happened in Colorado since 1982? Cities have grown in numbers not seen in our history. There are so many, many more homes out there now that all together help share the burden of that remainder, that the obligation of each homeowner has been reduced significantly.
The result today is that a $1,000,000 home is taxed on only about $75,000 of its market value.
Not possible, but true. That $1,000,000 office building pays taxes on $280,000 of its value. A $1,000,000 apartment building next door pays taxes only on $75,000 of its value. It’s the law.
As you drive around town through the commercial areas, you might think to quietly thank the owners of those buildings. They’re tax bills are almost four times what you pay on your home, dollar for dollar in value. Thanks to Gallagher, that’s tax money you as a homeowner don’t have to pay.
Finally, know that you have the opportunity to challenge that valuation. It has to be done a specific way, using comparable sales from a specific period of time and within defined parameters. Feel free to call me if you choose to challenge. I’ll send you the comparable sales that may help lower that tax bill.
Again, call me as you need. I’m always here for you.
Enjoy the day,