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All You Need To Know About Commercial Property Taxes

Whether you own a small office building or an entire skyscraper, commercial property taxes are an important part of your financial picture. Fortunately, there are many ways to save on these costs.

The first step is to complete an income and expense form each year. The assessors use this information to calculate the taxable value of your property.

Assessed Value

If you own or operate a commercial property, it is important to know that your building is worth a certain amount for municipal tax purposes. This is known as the assessed value of your property and is used to calculate your real estate taxes each year.

Assessed values are often the primary source of your real estate taxes, so it is essential to understand how they are calculated and why they change. Understanding the process will help you ensure that your real estate taxes are not too high or too low for your business.

When determining the tax-assessed value of your property, local tax authorities look at several factors. This includes recent sales, the condition of your building, and the overall market value of similar properties within the same tax jurisdiction.

Then, they multiply the total by your town’s mill rate to determine how much you owe in property taxes each year. In some cases, the assessed value is determined by a fixed percentage of the fair market value of your property.

In other cases, the tax assessors use a value-in-use approach to determine a property’s assessed value. For example, if your building is newly renovated and you plan on leasing it to new tenants, your property’s tax assessor will likely use a value-in-use approach when assessing your building.

This value-in-use approach is a more equitable way to assess your property because it takes into account changes that have occurred since the time of purchase, such as a construction or remodeling project. In addition, it also includes replacement reserves, which are monies set aside for repairs or renovations.

While it is not always possible to determine the true market value of your property, it is critical that you complete and submit your income and expense form each year. Whether you do it yourself or hire an accountant, this is a critical component of the valuation process and will ultimately determine your actual tax bill.

Tax Rate

Commercial property taxes are typically more significant than residential ones because they cover a larger share of a building’s market value and help local governments fund a variety of services. However, they can also be difficult to understand because tax bills often increase even when the underlying property tax rate does not.

The tax rate for commercial properties is based on a number of factors, including the classification of the property and the assessed value for tax purposes in that class. This formula is set by the City Council and may change from year to year.

Classification is a method for grouping properties by similar use and reducing the potential for misclassification. It is designed to keep taxes fair and avoid the problem of overly large tax levy for one class.

Each year, the Council sets the overall levy for real estate, which is then distributed among four property classes – small homes for one, two, or three families; cooperatives and condominiums (coops and condos); small rental buildings with fewer than 11 units; and large rental buildings with more than 11 units.

In addition, each class is subject to different tax rules. For example, coops and condos are not eligible for a substantial statutory abatement.

As a result, their tax rates are often much higher than those of small homes and large rentals. After adjusting for the recent rate increase, average annual increases for small homes were 6.5 percent; for coops and condos they were 5.5 percent; and for large rentals they were 5.2 percent.

In addition to these factors, tax rates can fluctuate due to economic changes. For example, the COVID-19 recession caused a decline in market value of commercial properties that translated into a loss of property tax revenues. Similarly, work-from-home workers who do not live in the city can reduce demand for commercial property and impact revenue from commercial properties.

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