According to Real Property Tax Advisors, 90% of commercial property owners are not taking full advantage of the tax savings available to them.
Many commercial property owners were shocked when the District of Columbia overhauled their commercial property tax assessment process in 2015, leaving owners with significantly higher tax liability.
It’s important to understand that property taxes are based on the value of your property. Though owning a high-value property makes it easy to attract well-paying tenants, it can have a negative effect on your tax bills.
Here are some tips to help you maximize your return on investment by minimizing your tax liability.
1. Know how much you are paying.
This may sound kind of silly, but commercial property owners usually treat their tax bills as a fixed expense and never look at their property’s assessed value or if it is being taxed at the correct rate.
While an owner with one property finds this irresponsible, companies or individuals with large real estate portfolios do not have the time or local expertise necessary to scrutinize these bills when they arrive.
Other owners choose to pay taxes in installments to avoid taking a big financial hit at once. These installments come at a price. That’s why it’s important to know how much your tax is, as well as any additional fees that come with the convenience of staggering your payments.
DC commercial property taxes allow two installment payments on March 31 and September 15.
Some tax jurisdictions give commercial property owners financial incentives for paying early. Take advantage of these whenever you can.
2. Educate yourself about your property.
Learn everything about your investment, including square footage, age, improvements and neighborhood. Arming yourself with the facts about your property gives you the ability to closely scrutinize your assessments for inaccuracies and outdated information.
Unlike income tax, which is considered a fixed expense, commercial property tax is a variable tax because it is based on fair market value of the property.
The District of Columbia has two classes of commercial property that are taxed at different rates, so be sure your property is categorized appropriately.
Northern Virginia commercial property taxes are calculated as an extra fee on top of the base rate.
3. Understand the appeals process.
If you do find errors or do not agree with your property’s assessed value, you should appeal. But each jurisdiction has its own appeals process, and you’ll need to be familiar with it in order to proceed.
Expect up to a 25% percent tax savings if you win your appeal.
Because of the complexity of the process, it’s probably best to seek legal advice. If you plan to do it yourself, check with your local tax jurisdiction to find your deadline, required forms and evidence in order to prepare.
4. Build a relationship with your local tax assessor.
Many companies hold multiple commercial properties in their portfolio in different areas. This makes it difficult and time-consuming to get to know the key players at local tax assessment offices.
Find out who your local tax assessor is for each property and at a minimum, have a conversation with them.
If you can’t do this, use a commercial property manager who handles several properties in the area. Many times they already have an established relationship. Additionally, their knowledge of the local market makes it easy for them to catch any discrepancies in your bills.
5. Take Advantage of Exemptions and Abatements.
Exemptions are available for a variety of reasons.
Nonprofits, senior housing facilities and churches are usually exempt from commercial property taxes. In the District of Columbia, buildings used by certain associations like the American Forestry Association and foreign governments are also exempt from property tax, so it may be advantageous to have one of these as a tenant.
Abatements are more complicated than exemptions. Generally speaking, abatements are awarded when buildings are developed or redeveloped with the intention of improving the local economy. Speak to a legal professional to find out more.
Exemptions and abatements are where you’ll find the most savings, but in order to get them you have to request them. Speak to a commercial property management professional about what’s available to you.
Disclaimer: This article is for informational purposes only, and does not constitute legal or financial advice. Be sure to consult with a tax and/or legal professional before taking any action.