An increasing number of homeowners are choosing to use sheds on their properties. While the traditional reason was to provide extra storage space, nowadays, sheds can be used for a variety of other things.
People working from home are using them as office spaces. A shed can double up as a play area for kids. Sheds also work well as exercise rooms, she- and he-sheds, guest spaces, tiny houses, and artist studios.
A common question for many potential shed builders is whether they'll be liable for additional property taxes if they build their own shed. There's no simple answer to this question, but this post should put the record straight.
Do You Have to Pay Property Taxes on a Shed?
In general, a shed used as a storage building is not considered for real estate tax purposes, especially if used solely for extra storage space. However, it's not quite as clear-cut as that.
To begin with, it depends on where you live and the different state tax laws.
Certain factors will determine whether you must pay property taxes on your shed. For example, it will usually be taxable if placed on a permanent foundation, such as poured concrete.
If your shed is connected to electric or water services, it will most probably be assessed for property tax purposes.
You are also more likely to pay property taxes on your shed if it adds value to your main property.
Portable sheds, on the other hand, are not typically considered real estate. This type of storage space is classified as personal property and is unlikely to be taxable.
What are the Various Factors That Determine if Your Shed is Taxable?
Real estate taxes, or property taxes as they are also known, are something you can't get away from. However, they only apply to properties that qualify as livable spaces or real estate. They also have to be considered ad valorem or assessed according to the property's value.
A variety of factors are taken into consideration when determining whether your shed will be taxable. They include the following:
Foundations
In some locations, a shed with a permanent foundation is considered taxable. A permanent foundation has to be something physical that prevents the shed from being moved. For example, it might be a concrete slab.
A shed is not considered permanent if it is held in place by weight alone. There has to be some substantial connection that stops the shed from being moved.
Utility Connections
Connections to utilities such as electricity, water, heating, plumbing, or sewerage also mean you're more likely to pay higher property taxes.
Utility connections make your shed a living space; therefore, it will be taxed accordingly.
Local Zoning Laws
Local zoning laws place restrictions on how you use your property. Zoning doesn't necessarily affect the value of your property and, thereby, the amount of property tax you pay. However, it could change the property tax rate you pay.
Permits and Regulations
The permits and regulations relating to the building of a shed don't affect whether you pay property taxes. However, county assessment authorities tend to monitor zoning permits. If they discover you're building a shed and have applied for a permit, a local tax assessor may decide to increase your taxes.
Don't let this put you off applying for a permit. You risk incurring a substantial fine if you try to build a structure on your property without obtaining the proper building permit. In some cases, you may be asked to dismantle your shed completely.
Various Amenities and Extensions
If you're adding amenities and extensions to your shed space, it could make it liable for taxes.
Generally, any improvement, modernization, or change in its physical configuration could trigger an increase in your taxes.
Shed Size and Height
The size and height of your shed don't make much difference to the amount of property tax you pay.
Although, if your shed is small, it's likely a portable one rather than one that's more permanent.
General Information on Property Taxes
You've probably heard it said many times before. Taxes, including property taxes, are one of the certainties in life you can't avoid.
If you buy your own home, you will have to pay property tax on it according to the property value. Unfortunately, such tax is unlikely to go down either. Typically, you can expect it to increase in most years.
How much property tax you pay depends on the value of your home. Property value depends on location, age, interest rates, amenities, and other factors.
On a positive note, property taxes and value do not increase at the same rate. Property value tends to outpace property taxes. This is good news when it comes time for you to sell. You'll likely make the money back that you've paid.
Something else you need to be aware of is the difference between real property taxes and personal property taxes.
Real property tax is assessed on agricultural, industrial, commercial, utility, and residential property. Personal property, on the other hand, is property that's not permanently affixed to the land. This might include equipment, tools, furniture, computers, and even a shed. You only pay personal property tax on property used in business.
How Much Will a Shed Raise Your Property Taxes on Average?
It's difficult to be exact when looking at whether sheds increase property taxes. How much your property taxes might increase depends on the individual state. County decisions also determine how much you might pay in property taxes.
One of the best approaches is to contact your local tax assessor. They'll be able to offer guidance about how much your shed size and its mobility might affect property taxes.
In some instances, the mobility of your storage shed might not affect property taxes at all. A local government tax assessor can give you a ballpark figure for how much the storage shed will affect property taxes.
Steps to Take if You Think That Your Property Taxes Have Been Increased Unfairly
If you receive your property tax bill in the mail and are unhappy with how much it has increased, you may have grounds to make an appeal.
It's usual for you to be given 90 days after you receive your new assessment in which to appeal. However, you should note that some jurisdictions close the appeals window after just 30 days.
Many property owners choose to appeal their assessments every year. On average, between 20% and 40% of those appeals win a lower assessment value and a lower property tax bill.
If you think your property taxes are unfair, these are the steps to follow:
1. Understand the Rules
You can expect your property tax bill during the first few months of every year. As soon as it drops through the mailbox, open the envelope and check the deadline for challenging a homeowner's property assessment. Hopefully, you'll have a couple of months, but it might be just a few weeks. You must also find out how your locality assesses property.
A common method of assessing property taxes is as a percentage of the market property value.
You might not see an increase in your property tax bill as soon as you've built your storage shed. It depends on how frequently property values are reassessed. Some localities refresh values once every year, while others do it every other year or every few years.
2. Check Whether There Are Any Tax Breaks to Take Advantage of
Certain tax breaks are available, so you want to make sure any reductions you're entitled to are itemized. For example, in some states, you're allowed to own and live in a primary home and shield a portion of its value from taxation.
Other tax breaks include freezes or deferrals. Tax breaks and rebates aren't automatic. You usually have to apply for them and then prove you're eligible. If you contact your state department of taxation, you'll find out what breaks are available.
3. Check That The Records Are Correct
The records give an official description of your house and any additional buildings, such as your shed. The assessor may correct the error on the spot if there's an obvious error, such as four bedrooms when your home is a two-bedroom bungalow.
If you're querying the relevance of a shed you built in the garden, getting the records changed might be a bit of a fight. You may need to go as far as making a formal appeal.
4. Gather Your Evidence and Prepare Your Case
You might have grounds for an appeal if the assessed value is significantly higher than for other similar sheds in the area. Or you've been assessed for having a permanent shed on your property.
This stage of the process requires you to gather any pertinent evidence to your appeal and prepare to make your case.
5. Be Prepared For a Fight
The appeal process varies depending on your location, but typically, you send your appeal and any evidence together. The evidence might include blueprints, photographs, data on comparable sheds in the area, and repair estimates. You send these to the tax assessor for review. You can expect a verdict on your appeal within a couple of months.
6. Consider Using a Professional Appraiser
If you've not got the stomach for a battle or the time to devote to it, you might consider hiring a professional to do the legwork for you.
A professional appraiser will provide the most convincing evidence for your property's worth. It should cost around $250 but ensure you find an appraiser with national certification from the Appraisal Institute or the American Society of Appraisers.
Does a Shed Add Value to a Home?
Property professionals tend to agree that a decent-sized shed has the potential to boost property values. A good shed can be great fun while you own your home and a fantastic selling point for potential buyers who want to maximize space.
While a portable shed for storing garden tools is handy, a large shed with TV hookups and a pool table will be a compelling selling point.
FAQs
Is a shed considered a land improvement?
In accounting terms, the official definition of land improvement is an enhancement to a plot of land that makes it more usable. In many cases, this can be applied to the addition of a shed.
When will a shed be considered real property?
A shed is considered real property if it has been permanently attached to the land.
When will a shed be considered personal property?
A shed is considered personal property if it can be moved, regardless of how much it weighs.
Does a shed with a permanent concrete foundation increase property taxes?
In short, yes, it will. A permanent concrete floor or foundation makes a shed a liveable space, which can raise your property value and increase property taxes.
Does adding a deck to your shed increase property value and property taxes?
Yes, adding a deck to your outdoor structure could increase property value and, in turn, your property taxes.
Are shed taxes deductible?
An outdoor structure such as a shed can be a deductible business expense. It is possible to take a write-off for an independent shed structure on your property that you use exclusively and regularly for business. The deduction will include any expenses connected to the shed structure. Examples include repairs and utilities. Alternatively, you can take a dollar amount per square foot of business space.