October, 2013

Assessing Real Estate in Indiana

Assessing Real Estate in Indiana

A significant percentage of your local government is funded by property taxes, not just your city or town but your library and parks, your county and township, your fire district and local schools too.    Indiana Code (IC 6-1.1-31-6(c)) provides that “with respect to the assessment of real property, true tax value does not mean fair market value.  Subject to this article, true tax value is the tax determined under the rules of the department of local government finance.”

For the most part I will try not to use a bunch of government lingo to explain how things work, it seems they either try to confuse, or just don’t want to say it outright in case there is a case over-ruling their opinion later.   Let’s be blunt:  Farm land, all agricultural land is valued by specific guidelines from DLGF.   The rest of our properties, your house or your office, the shopping center or hospital, all lean on a fancy term:  Market Value in Use.   Defined as “… may be considered as the price that would induce the owner to sell the real property, and the price at which the buyer would purchase for a continuation of use of the property for its current use.”

Short example.  If you own farmland, it is valued as farmland.  If you own an empty lot, it is valued as an empty lot.  If you own an industrial building it is valued as one.   Assessed value is not assigned for future “potential” use of property, it is valued for current use.  This protects all of us from county or township assessors who decide to start guessing at what we might do with our property down the road.

Your property, will be assessed as of March 1st every year.   In some years this assessment will be based on a full three part assessment:  cost approach, sales comparison approach, and income approach.  The plan right now is for 1/4 of all county properties to be fully assessed (reassessed) each year.   The remaining 3/4 will be “trended” or adjusted slightly up or down in response to sales disclosures that are filed with the county.  Anytime a property is sold or changes title, such a form is required to be signed.  These forms are used to collect information about real estate transactions for these annual adjustments or trending factors.   Either way, you can basically count on your property changing, perhaps only slightly, every year.

  • During a recession, if property sales are slowing or decreasing, your trending factor may reduce your value to reflect less buyers and less sales
  • During a run up in home prices, your property may be reassessed higher or trended higher with your neighborhood again reflecting the overall general market conditions
  • If you add a deck, finish the basement, change your landscaping, remodel or upgrade the property, then you should expect an increase in your value at the following year’s March 1st valuation
  • If you demolish a building therefore you should expect that value to be reduced to just the land value at the following March 1st valuation.

In Indiana we pay taxes in arrears.  Your value is set as of March 1st, and the taxes are due the following year.   This year you are paying for last year’s value, next year you will pay taxes for this year’s value.   This can get highly confusing when you sell or buy real estate and often the title company has to handle some escrow estimating to make sure these taxes get paid.

So let’s shoot as straight as possible, your property is worth generally what someone would be willing to pay you and your would be willing to accept for the property as it’s currently being used.   But since we don’t actually adjust your property assessment to the sales price when you sell it, called sales chasing, we use mass appraisal techniques to take your properties characteristics and assign a neighborhood factor for the area in which it is located.

You may have bought your home for $150,000 in 2010.   It may have been valued during the recession for as low as $140,000 and is slowly moving back up with the market.  This year has been a good year for home sales, and a lot of sales disclosures are being used to begin making revisions to 2014 values.   You can expect your value to increase along with the entire market.   You can expect your office building and farmland to do the same.

For a basic overview, roughly 6 hours, of property assessment in the State of Indiana see the Level One certification process and documentation on the DLGF website.   It’s free!   (Will be adding to this post over the next few days as I am personally completing the certification process)

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A series on understanding local government finances

A series on understanding local government finances

Much of the consulting work we provide to Indiana municipal subdivisions is fundamentally rooted in municipal finance and the fund accounting and budgeting process spelled out in Indiana State statutes.   Although the Department of Local Government Finance, DLGF, attempts to make municipal finance understandable – in short, it’s not all that easy to follow the debits and credits.

Once a week I will be trying to write a post about some part of municipal finance law, regulation, or analysis.    Since the State of Indiana has diligently worked to make budget and finance reports available online, we will try to use publicly accessible documents whenever possible.   This post is basically the index or table of contents – which will grow as each post is written so you have one place to find the links to the specific subjects.

If you have more specific questions, don’t hesitate to contact your local clerk-treasurer, county auditor, or Indiana’s Department of Local Government Finance.

Table of Contents – The Plan and subject to significant changes

  • Assessing real estate property
  • Reassessment
  • Sales Disclosures
  • Trending
  • Property tax appeals – PTBOA and State levels
  • Assessing personal property
  • Deductions and Exemptions and Abatements on property assessment
  • Indiana’s constitutional tax caps – a/k/a circuit breakers, or 1/2/3
  • What qualifies as tax exempt, how is that different than non profit?
  • Rolling and Certifying to the state
  • Maximum tax levy
  • State growth quotient
  • What in the world is the deal with these TIF’s?
  • Redevelopment Commissions and Allocation Areas
  • TIF Neutralization
  • The property tax rate
  • Why is a levy different than the budget?
  • How many funds are there in my community?
  • Miscellaneous revenues
  • Income taxes affecting local government finances
  • The annual budget building and approving process
  • State budget, tax rate, and levy approval process
  • Certified budget order and 1782 Notices
  • Sending tax bills
  • State Audit process
  • Municipal Bond Financing
  • Economic Development Incentives and Analysis
  • Local and Municipal Planning
  • What is a town?
  • What is a township?
  • What is a city?
  • What is a county?

The Indiana Department of Local Government Finance defines property taxation:

What is the purpose of property taxes?

Property taxes are a primary source of funding for local government units, including counties, cities and towns, townships, libraries and other special districts including fire districts and solid waste districts. Property taxes are administered and collected by local government officials. These funds are used to pay for a variety of services including welfare; police and fire; new construction and maintenance of buildings; local infrastructure like highways, roads and streets; and the operations, including salaries, of the local units of government.

Property taxes are an ad valorem tax, meaning that they are allocated to each taxpayer proportionately according to the value of the taxpayer’s property. The statewide average revenue distribution for each property tax dollar is as follows:

  • County: $0.1870
  • Township: $0.0377
  • City/Town: $0.2247
  • School: $0.4364
  • Library: $0.0458
  • Special Unit: $0.0660
  • Conservancy: $0.0024
  • Redevelopment: $0.0010

Breakdown is based on average expenditure per dollar of property tax levied in Indiana for taxes payable in 2010. (Information sourced by the Department and includes all counties except LaPorte.) Learn more about where tax dollars are spent in Indiana.

The property tax process is also known as the property tax assessment and billing cycle. This cycle begins with the development of each property’s assessed value by the county assessor. The assessor then transfers the data on each property’s value to the county auditor. The auditor, after applying deductions, exemptions, and other valuation adjustments, sends these values (known as the certified net assessed values) to the Department of Local Government Finance. After thorough review, the Department converts these values to property tax rates by dividing each local unit’s approved budget amounts by the assessed value for each unit. The Department forwards these rates back to the county, where the auditor and treasurer work together to calculate, generate and mail tax bills to each taxpayer. Learn more about the assessment to budget process.

The Department’s Website offers a variety of resources to educate and inform taxpayers on this process. The site also features search tools to provide taxpayers with sales disclosure and assessment information on properties statewide. This information can be used in the appeals process or to allow taxpayers to better understand how assessors determine a property’s assessed value.

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