How repairs can affect the assessment

MAILBAG

October 10, 1999

Dear Mr. Azrael:

Do repairs affect market value for the property assessment. I have a pool that's in need of $7,000 worth of repairs. The property tax assessor will not reduce the property tax, saying the repairs are actually maintenance and do not affect the property tax value.

James Skunda, Severn

Dear Mr. Skunda:

The question is interesting, but it comes down to a judgment call. Ultimately, the condition of any improvement to a property, including your swimming pool, would be reflected in the assessor's depreciation allowance.

If you think that the swimming pool is unusable, the assessor may allow a 100 percent depreciation. However, the assessor may use his own judgment and may assume that normal repairs and maintenance are required and therefore lower the depreciation amount.

With your question in mind, it might make sense to review how property is assessed. The State Department of Assessments and Taxation revalues real property every third year. The basis for the valuation of real estate for property tax purposes is its "full cash value" on Jan. 1 of the year in which the assessment cycle begins.

For example, if your property is revalued as of Jan. 1, 2000, the new full cash value will apply for the real property tax year commencing July 1, 2000.

For residential properties, assessors use the Maryland Assessment Manual.

Residential properties are valued by determining the replacement cost of the improvements, less a deduction for depreciation of the improvements. The depreciated value of the improvements, plus the land value, equals full market cash value.

The assessor determines the number of stories and type of construction (e.g. two story, full basement, brick), and assigns a grade based on the quality of construction.

Consulting the manual, the assessor looks up a rate per square foot to replace the structure and multiplies the rate times the square footage of the foundation area to determine replacement cost.

For example, if the foundation area of a two-story house is 1,200 square feet and the applicable rate in the manual is $60 per square foot, the replacement cost is $72,000.

The assessor then adds for other features, such as an extra bath, porch, fireplace or central air, and for accessory structures such as a detached garage or swimming pool.

These extras also are valued at current replacement cost.

The assessor then computes a deduction for depreciation. The deduction is based on the age and condition of the house and accessory structures.

Finally, the result may be multiplied by a market value index (MVI), which is supposed to adjust the depreciated cost to reflect the market.

The property grade, the depreciation factor and the MVI are a matter of the assessor's subjective judgment.

When a new valuation is made, the increase in full cash value over the previous full cash value is phased-in by equal increments over a three-year period. Thus, the phase-in full cash market value for the first year in the three-year cy- cle is the previous market value, plus one third of the increase in the value.

Most real property is assessed at 40 percent of its phased-in value. Owner-occupied residential property may be entitled to a homestead property tax credit, which limits the increase in taxable assessment based on a formula provided by statute.

When you receive a notice of a new tax assessment, you have a right to appeal. The appeal must be taken within 45 days of the date of the notice, or the right to appeal is lost for the first year in the cycle.

After you appeal, you will meet with the assessor to discuss the assessment in detail. You have the opportunity to explain why you believe the assessment was too high.

You have a right to obtain a copy of the assessor's work sheet, showing each component of the total assessment. You may be able to convince the assessor that the property grade, depreciation or MVI he or she used was improper.

If you are still dissatisfied, you have a right to a further appeal to the Property Tax Assessment Appeal Board (PTAAB). The board consists of three local citizens who are not required to have appraisal expertise. The taxpayer has the burden of showing the assessment is too high.

At the level of the PTAAB, you may present evidence of sales of comparable properties in the neighborhood or you may present a valuation by an independent appraiser.

If you are still dissatisfied with the PTAAB decision, you can appeal it to the Maryland tax court and, ultimately, to the Circuit Court. However, at these levels procedures are more formal and success is less likely than at the PTAAB.

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