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Why File a Property Tax Appeal?

Fall 2004Cole Schotz DocketAttorney: Wendy M. Berger

Good management of real property requires that industrial, commercial and multi-unit residential apartment owners evaluate their tax assessments annually to determine if they are being assessed correctly.  Often, properties are over-assessed and, consequently, over-taxed.  Such over-assessment can result from, among other factors:  damage or destruction to the improvements on the property; a change in the income stream; obsolescence; a change in zoning; environmental contamination; wetlands limitations; legal restrictions; a loss of a tenant; and a change in the character of the surrounding properties.

In early 2005, each property owner will receive from their tax assessor a notice of the property’s tax assessment for the current year.  This is the perfect opportunity to review the assessment to determine if a tax appeal is warranted.  You have the right to challenge the assessment by filing an appeal by April 1st.  Your failure to do so by that date will cause you to lose your right to appeal.

This review should determine whether the assessment reflects the current “market value” or “true value” of the property.  In estimating the true value of real property, an appraiser normally uses three methods of valuation:  (i) the cost approach; (ii) the income approach; and (iii) the comparable sales approach.  The cost approach is an estimate of how much it will cost to reproduce the buildings, less physical deterioration and economic and functional obsolescence.  The income approach is developed by capitalizing the net income (estimated gross rental less expenses and a vacancy factor) using an accepted rate of return.  The comparable sales approach compares the property to sales of similar or comparable property in the area.

Clearly, then, the most obvious reason to file a property tax appeal is to lower the tax assessment and save tax dollars.  Equally as important is to make the property more rentable or saleable.  Often, property does not rent or sell because its carrying costs (including real estate taxes) are too high.  A reduction in assessment can instantly make the property more attractive to buyers or renters.

We are recommending that all property owners conduct an annual review of their real property holdings to determine if they are being assessed properly.  Should you have an interest in filing a tax appeal, please contact me for assistance.

Wendy Berger is a partner in the Real Estate Department.  She can be reached at wberger@coleschotz.com.

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