Most homeowners can think of at least one thing they’d change about their home. When that wishful thinking turns into serious planning, the next question is whether the property value increase is worth the cost of the renovation. What some homeowners fail to consider, however, is that many home improvements also impact property taxes.
When you apply for building permits or when construction crews descend on your property, tax assessors take note. Eventually, they’ll ask to see the work you’ve done, and they may decide to raise your taxes.
Of course, not all home improvements result in a tax increase. Knowing which ones put you at risk could be a good way to avoid throwing away your money. Here are 10 projects you might reconsider.
Building onto your home
Ready to trade in your master bedroom for a larger, grander master suite? Longing for just one extra bathroom so you don’t have to share with your guests? Why not expand your floor plan?
Home addition projects can cost anywhere from $20,000 on the low end to more than $300,000 on the high end. The impact on your property’s value varies just as widely, too. That extra bathroom could add between $30,000 to $55,000, while your new master suite might increase your property value by as much as $153,000.
Keep in mind, though, that the bigger your home addition, the greater the potential tax increase.
Creating more rooms within the home
Need a spare bedroom but don’t have the budget for a full-on home expansion? Divide up an existing room instead. Building a wall that turns one room into two is fairly affordable, costing $980 to $2,900 on average.
Comparatively inexpensive though this renovation may seem, additional bedrooms can up your property value by $30,000 to $50,000. That’s because your home’s value is based in part on how many bedrooms it has. In other words, prepare for a higher property tax bill once this renovation is complete.
Pro tip: Not sure how you’ll pay for a major renovation? The best mortgage lenders can also refinance your home or provide a home equity loan to help you cover costs.
Installing an in-ground pool
In-ground pools are a coveted home upgrade — and for good reason. Who wouldn’t want their own private swimming hole? Homeowners pay an average of $35,000 for the privilege, and because this is a permanent land alteration, it can trigger a tax reassessment.
The ROI on in-ground pools is rather low, however, usually only in the 7% to 10% range. Since your new pool won’t have a major impact on your property value, it (hopefully) won’t cause a drastic increase in your property taxes, either.
Adding a deck or patio
If you love entertaining outdoors or simply enjoy soaking in the sun, creating that perfect backyard oasis is probably at the top of your renovation to-do list. But installing an expansive deck or patio isn’t cheap. Average costs for these projects range from $16,766 to $22,426, depending on the material used.
On the other side of your deck install, your property value could increase by as much as $14,000, give or take. Of course, you’ll likely see your property taxes increase, too.
Pro tip: If you’re going to put your project purchases on a credit card, make sure you’re using one of the best credit cards for home renovations.
Repurposing existing spaces
Converting a basement or attic into an in-house suite is another way to add value to your home. In its 2022 Remodeling Impact Report, the National Association of Realtors (NAR) estimates that basement conversions typically cost homeowners $57,500. Attic conversions are a bit pricier: NAR reports that these often cost around $100,000.
Still, the ROI — and thus, the potential property tax increase — on these renovations is quite high. You can expect to recoup around 86% of the investment in your basement conversion and 75% of the investment in your attic conversion.
While new cabinets or updated appliances alone shouldn’t affect your property taxes too much, a major room renovation can. If the before and after photos look like they were taken in entirely different places, know that a tax reassessment is in your future.
What you’ll spend on full renovations like these varies tremendously. You might spend anywhere from $24,000 to $150,000 or more, with an ROI as high as 78%. That’s great news for your property value, but not so great for your tax bill.
Building a shed
Any sort of outbuilding — whether it’s used as a workshop, a detached office, or an outdoor reading nook — can bump up your property value and, by extension, your property taxes. And depending on how luxurious you want your shed to be, you could spend tens of thousands of dollars.
The national average, though, is right around $2,500. And it’s not unheard of to see an ROI as high as 200%. How that’ll affect your property taxes, however, depends entirely on where you live. Some localities only levy taxes on “livable” or permanent outbuildings, while others assess taxes on all outdoor structures.
Pro tip: There are plenty of ways to make extra money to finance renovations. You don’t have to take out a loan if you don’t want to.
Replacing your roof
Roof replacements aren’t just essential, they’re also a surefire way to add value to your home. It’s a good thing, too, considering that roof replacements usually cost between $22,000 and $46,000. You’ll typically see an ROI in the 60% to 68% range, but that doesn’t necessarily mean you’ll pay more in property taxes.
Roof replacements are often considered routine home maintenance and aren’t always taxed the same way as other improvements. Still, if you upgraded to a different type of roof, you might see a change on your tax bill.
Expanding your garage
If your existing garage isn’t cutting it, you may be tempted to make it bigger. Perhaps you don’t have a garage at all, and you’re eager for a secure place to park your vehicle. Whether you’re building your garage from scratch or expanding what you already have, plan to spend somewhere between $10,000 to $43,000.
Because attached garages are hot commodities, they usually deliver a 60% to 70% ROI. There will likely be a tax tradeoff, however, especially since this particular renovation adds to your home’s overall square footage.
Paving your driveway
To complement your fancy, new garage, you might want to pave the driveway leading up to it. You may think this home improvement project is more of a convenience than anything else, but consider the ROI: the average cost to pave a driveway is roughly $5,000, but it can increase your property value by as much as $20,000.
Be prepared for a property tax increase, too. Cosmetic driveway upgrades can be considered land improvements, which frequently result in a higher tax basis.
If a renovation adds value to your home, requires a permit to complete, or both, brace yourself for a larger property tax bill. Don’t wait until your bill arrives to prep your finances, though.
As part of your home improvement planning process, proactively reach out to your county assessor’s office. Get at least a rough estimate of the potential tax impact of your renovation, and compare that to your anticipated costs and ROI.
While you’re at it, consider starting a property tax savings fund so you can boost your bank account. Knowing you’ve got money tucked away specifically for your once- or twice-yearly tax bill will let you enjoy your renovation worry-free for years to come.
Easy Tax Relief Benefits
- Eliminate your tax debt
- Potentially reduce the amount you owe
- Stop wage garnishments and bank levies
- Communicates with the IRS on your behalf