Explore practical strategies for managing and reducing property taxes on senior living facilities and multi-family housing, including detailed insights on the effects of real estate and business personal property values, plus state-specific regulations.
Property taxes can be intimidating for owners of senior living facilities and multi-family housing properties (also known as apartment complexes), mainly because they’re often one of their largest expenses. Understanding the nuances of their real estate and business personal property taxes can help property owners effectively manage their financial obligations.
Let’s explore how property values – both real estate and business personal property – are assessed and the importance of understanding your state-specific tax regulations.
Valuing real estate for senior living facilities and multi-family housing properties is a multifaceted process impacted by several factors.
Of course, property owners are responsible for the value and subsequent taxes on their real estate. However, this financial burden can also affect tenants, as reflected in their rent payments. It's a trickle-down effect, where property taxes impact residents' cost of living.
These properties also tend to be sold frequently, constantly changing hands. With each sale, property owners must reassess the real estate value and its tangible assets, ensuring both align with the most recent transaction and the current market conditions.
Since property taxes can be complex and variable, property owners must conduct annual assessment reviews. That way, by meticulously analyzing assessments, raising questions, and pursuing appeals during reassessment periods, property owners can ensure their taxes align with comparable nearby properties.
When evaluating real estate assessments, property owners should carefully consider the following key areas that have a significant impact on their property:
Location can be among the most influential factors on property values and taxes. For example, an apartment building in New Jersey near New York City will likely be valued higher than a similar property in Louisiana.
The proximity to major cities, with its plethora of job opportunities, cultural amenities, and transportation networks, significantly boosts property value.
It’s also essential for property owners to stay informed about exemptions and credits available, as they can significantly affect a property’s value and taxes.
Assessors may agree to a lower property value or provide a real estate incentive if an owner chooses to locate in their jurisdiction. Attracting new businesses and real estate development in a jurisdiction helps promote economic growth.
A great example of this tactic is the Commercial Rehabilitation Act in Michigan. The act is a tax incentive for rehabilitating commercial property as a commercial business or multi-family residential facility.
Property owners must know that real estate legislation can be dynamic, and opportunities for real estate incentives and credits are often revised. The responsibility ultimately falls on the property owner to apply for exemptions or credits within their local taxing authorities.
“We’ve seen taxpayers miss opportunities because they did not believe they were eligible for an exemption.”
“We’ve seen taxpayers miss opportunities because they did not believe they were eligible for an exemption,” said Angie Kirk, Manager of State and Local Tax Services at Clearview Group. “Property owners should proactively consult with state and local tax experts to assist in securing any applicable exemptions.”
When it comes to physical attributes, senior living facilities often resemble apartment buildings or extended-stay hotels. They have buildings with multiple units where people reside, and each unit usually includes a bedroom, bathroom, kitchen, and other amenities.
Consequently, assessors are likely to consider these similarities when evaluating these types of properties.
Assessors use various valuation tools, like location and regulations, which can significantly affect the value of your property.
A popular valuation tool is questionnaires sent to property owners. These tools gather data on various factors, like vacancy rates, property conditions, number of units, and amenities. All this information can affect how your property is valued and taxed, so property owners must take the time to ensure you are accurately completing those questionnaires.
Lastly, assessors can use various methods to calculate the value of your property. Given their nature as revenue-generating investments, the income approach is typically used to value senior living facilities and multi-family housing.
The income approach uses the income generated by the property as a factor to estimate the value of that real estate. This approach is used over alternatives like the sales comparison and cost approach because it directly considers the property's potential to produce revenue.
However, if a property owner detects their property's value isn't aligned with the income approach, they must work with the assessor on an alternative.
As we mentioned, there are three accepted approaches to valuing real estate: the income approach, the sales comparison approach, and the cost approach. How those approaches are applied and how the assessments are administered, including the associated appeal deadlines, can vary significantly by state.
Like Maryland and Florida, where there are state revaluation systems, all counties throughout each state follow the same guidelines. This makes it a bit easier to understand how the assessor has calculated your property value.
Virginia is very decentralized, and each locality can assess real estate as it chooses, including deciding when the associated appeal deadlines fall.
In Pennsylvania and New Jersey, property owners must partner with a local attorney if they intend to file an appeal on their real estate values.
Like their real estate values, property owners are responsible for the value and subsequent taxes on their business personal property. Therefore, they must also conduct annual assessment reviews of their business personal property.
By analyzing assessments, raising questions, and pursuing appeals, property owners can ensure their taxes align with their initial compliance returns filed each year and are correct for their specific business type.
When evaluating business personal property assessments, property owners should carefully consider the following key areas that have a significant impact on their property:
Business personal property is valued using the cost approach. The cost of a business's equipment is reported as part of the tax filing requirement and then valued using standard depreciation tables applied to that cost based on the age and type of equipment.
For example, furniture would have a longer life table and computers a shorter life table. Equipment on a longer life table is subject to more tax over the asset's life.
Depreciation schedules can vary significantly by state and taxing jurisdiction. In some jurisdictions, equipment owned by a senior living facility or multi-family housing property can be valued on a faster depreciation schedule than equipment owned by other businesses, ultimately leading to lower taxable values.
In other jurisdictions, certain types of equipment owned by a senior living facility or multi-family housing property are exempt from tax, helping to lower the property's taxable value. This results in less property taxes owed when certain equipment is not taxable to the property owner.
“We have assisted many clients in securing value reductions by proving certain fixtures or equipment should be valued on a more advantageous depreciation schedule,” said Megan Lusby, Director of State and Local Tax Services at Clearview Group.
“This is likely a result that clients would not have been able to reach on their own. Depreciation schedules are complicated and unique by state. It’s wise for property owners to utilize expert knowledge to achieve a more desirable result.”
"Depreciation schedules are complicated and unique by state. It’s wise for property owners to utilize expert knowledge to achieve a more desirable result.”
When it comes to your business personal property tax filing requirements, it can often feel like a complex puzzle, especially when each state or jurisdiction has a unique set of rules.
In California, instead of the standard form 571-L typically used for reporting business personal property, owners of senior living facilities and multi-family housing properties must use form 571-R.
Texas generally employs a 9-year life schedule. However, in cases where the property owner holds the tangible assets and their real estate is valued based on the income approach, tangible assets are considered part of the real estate value. This would then exempt the property owner from a separate business personal property assessment.
Virginia takes an even more detailed approach. Some jurisdictions may request owner-occupied properties to provide income and expense statements for a specific period. Assessors in Virginia also have the authority to request a complete list of tenants, including their names and addresses; this generally occurs when there is a recent change of ownership.
Some jurisdictions differentiate the way equipment is reported for senior living facilities or multi-family housing properties, often aligning them with the categories used for hotels and motels.
Florida, for instance, requires that general equipment for hotels, motels, and apartment complexes be reported separately from in-unit furniture and equipment. Florida aligns the valuation of apartment fixtures with those of hotel and motel equipment, using a 10-year life schedule.
In Maryland, business owners are allowed faster depreciation for hotel and motel furniture and apartment furnishings when rendering business personal property. This accelerated depreciation can be beneficial from a tax perspective, where this property is subject to a 20% per annum depreciation schedule with a minimum assessment of 10% of the original cost for the oldest assets.
When dealing with in-unit appliances, there is good news for property owners in Arkansas, Georgia, Nevada, and Virginia. In these states, in-unit appliances are often exempt from business personal property tax. They generally define appliances as household items, not for commercial use, meaning those used for commercial use are exempt from taxation.
Understanding how each state or jurisdiction values real estate and tangible personal property ensures compliance with state and local regulations. It can also help generate tax savings. These tactics will ensure property owners are not overburdened or caught off guard when assessment notices and tax bills arrive.
Don't let the complexities of property tax compliance overwhelm you. Enlist the help of tax experts to navigate every challenge and ensure your property tax strategy is as efficient and effective as possible. Get started today.
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