Barndominiums cost less to build compared to traditional homes, but what about the property taxes? Before building a barndominium, you may want to explore the costs of living in one.
You need to pay property taxes on just about any type of property you own, including barndominiums. Here’s a closer look at the factors that answer the question how are barndominiums taxed?’
What Taxes Do You Pay on Barndominiums?
Counties, cities, and other types of municipalities charge property taxes on barndominiums. Property tax is an obligation for owners of most types of property, including residential, commercial, and industrial properties. Local governments charge property taxes to fund local services.
Your property taxes help pay for:
- Public education
- Public libraries
- Police and fire
- Water treatment facilities
- Local utilities
The property tax charged on real estate properties is often called “real property tax,” as some local governments charge property tax on other assets, including cars and boats.
Real property tax is charged on real property, which includes land, structures, and fixed buildings. Many local governments charge property taxes twice per year. You may receive a summer property tax bill and a winter one.
Property taxes and homeowner’s insurance are often paid with your mortgage payments. Lenders may set aside money (escrow) to cover taxes and insurance throughout the year. Ensuring that property taxes and insurance are paid protects lenders’ investments in the mortgages that they approve.
Failure to pay property taxes may force the local government to place a lien on the property. If the property moves into foreclosure, the lender may need to cover past property taxes, delinquency fees, and interest before auctioning off the property.
How Does Real Property Tax Work?
Real property tax is charged on commercial and residential properties. In most cases, a barndominium is taxed as a residential property.
Property taxes are determined using two numbers – the current tax rate and the market value of your property. The tax rate is set by the local municipality, which may be the county, city, or township where you build your barndominium.
The tax rate is also known as a millage or mill rate. The mill rate covers public services and local infrastructure.
Mill comes from the Latin word “millesimum,” which means thousandth. A 1 mill tax rate charges $1 per $1,000 of the property’s assessed value.
The average property tax rate in the United States is 1.1% (11 mills). If your barndominium is valued at $150,000, you would pay about $1,650 in property taxes.
How Is the Value of a Barndominium Assessed?
The assessed value of your property is determined by an assessor. Assessors are hired by local governments to estimate the value of properties, which may include land and any structures, including sheds or barns.
Some of the factors used to determine the value of a property include:
- The size of the land and property
- The location of the property
- The desirability of the location
- Number of bedrooms and bathrooms
- Utility of the property (proper drainage, modern building standards, etc.)
- Prices of comparable properties
The assessed value is based on a variety of details, but the overall square footage of your property is the biggest factor. Unfortunately, the square footage included in the assessed value may vary depending on the local government or the assessor.
Some municipalities tax the livable portion of the structure. For example, unheated areas, such as a barn, workshop, or garage, may not be included in the assessed value, resulting in lower property taxes. Yet, some areas may include the size of the barn and other attachments in the assessment.
If you have several hundred square feet of unheated space, the method used to assess your property could result in much higher or lower taxes.
Can You Appeal a Barndominium Tax Assessment?
Most local governments provide a way to contest the assessed value of a property. You may need to file paperwork or submit a request with a local office to review the assessment. However, the process is often quick.
Appealing the valuation notice for your property is an equalization appeal. After you receive the valuation notice, you may have 30 days to dispute the assessment.
If you plan on disputing the assessed value, you should try to demonstrate why the value should be lowered. You may need to review the prices of comparable properties in the area and provide proof of any changes to your barndominium, such as removing a shed.
Working with a tax professional or an attorney that specializes in tax matters is often recommended. You have a greater chance of a favorable outcome when working with a professional. However, you cannot be penalized for filing an equalization appeal.
Tips for Lowering Your Property Tax on a Barndominium
Now that we have covered the answers to the question ‘how are barndominiums taxed?’, the following steps may help you receive a lower assessed value for your barndominium, which helps to lower your property taxes:
- Avoid making improvements
- Research the value of neighboring properties
- Allow the assessor to enter your barndominium
- Walk with the assessor during the assessment
After building a barndominium, you may receive notice from an assessor’s office or local government to arrange an assessment of your property. Allow the assessor to enter your barndominium and walk with them as they evaluate your property. You can point out issues that they may overlook that may impact the property’s value.
You should also avoid adding on to your barndominium before the assessment. Building a new garage or updating the siding may increase the value of your property, resulting in higher taxes.
Research the value of neighboring properties to get a better sense of the average value in the area. Knowing how much homes cost in the area helps you determine whether the assessed value of your property is too high.
Summary: How Are Barndominiums Taxed?
Property taxes are a necessary expense that comes with owning any type of property, including a barndominium. Your taxes are based on the local tax rate and the assessed value of your barndominium.
You may have a short window of time to appeal the assessor’s decision after the assessed value of your property is determined. If you believe that your assessed value should be lower, you can appeal the assessment.