How Property Taxes Work: Unimproved vs. Improved Property in New Construction Homes

Buying a new construction home is an exciting journey, but it's essential to understand the financial implications, especially when it comes to property taxes. In this guide, we'll break down the differences between property taxes on unimproved and improved property and what to watch out for in your tax bill the following year.

What is Unimproved Property?

Unimproved property refers to vacant land without any structures or significant improvements. When you initially purchase a new construction home, the property might be classified as unimproved until the construction is complete.

Property Taxes on Unimproved Property

Taxes on unimproved property are generally lower because they are based on the land's value alone, without considering any structures.

What is Improved Property?

Improved property includes land with structures like homes, commercial buildings, or other significant improvements. Once your new construction home is complete, the property will be reclassified as improved.

Property Taxes on Improved Property

Taxes on improved property are higher because they account for both the land and the structures on it. This is where you need to be cautious, especially when budgeting for your mortgage payments.

The Tax Bill Surprise

When you buy a new construction home, your initial property tax assessment may be based on the unimproved land. However, once the home is built, the property will be reassessed, leading to a higher tax bill. This can result in an unexpected increase in your mortgage payment if your taxes are escrowed.

What to Do?

1. Consult Your Tax Accountant: Always consult with your accountant about potential tax implications when buying new construction. Your lender and real estate agent could be good sources of information but we recommend you always consult with your tax professional for professional tax advice.

2. Check Local Tax Rates: Research the local tax rates for improved and unimproved property to get an idea of what to expect.

3. Budget Accordingly: Plan for the potential increase in property taxes and, consequently, your mortgage payment.

Conclusion

Understanding the difference between property taxes on unimproved and improved property is crucial when buying a new construction home. Being prepared for a potential increase in your tax bill can save you from financial surprises down the line.

Got Questions?

If you have any questions about property taxes or the home-buying process, feel free to reach out to us at First Coast Heroes. We're here to guide you every step of the way!