Accountants Can Help Their Clients Control Real Estate Tax Expenses
As an accountant, clients trust you to know the tax code and require reliable and insightful tax advice.
Your clients literally open their books to you. Your clients share sensitive business information with you. You know the good, the bad, and the ugly.
Here are somethings to keep in mind next time you go out to a client for an audit or your client comes to your office for a quarterly meeting: What are the client's real estate assets and what are the client's real estate tax expenses?
Depending on the responses, here are some follow-up questions for the client:
What are your property tax obligations? Have they increased lately?
What do you think of the assessor's valuation of your real estate?
Have you purchased real estate recently?
Have you refinanced your mortgage loan recently?
Has your real estate been appraised recently?
More Work for You?
Boiling it down, real estate taxes go up or down depending on the county’s valuation of your client’s real estate. The higher the valuation, then the higher the client's real estate tax bill will be. Not too hard, right?
Still, maybe you are thinking: I am an accountant not a real estate broker... how would I know if a property has been overvalued by the assessor?
You do not need to have an exact answer. And your knowledge and expertise as an accountant will be useful.
For instance, ask yourself or your client if the property could sell for the amount the property is being taxed at? Are there consistent losses at the apartment building, retail strip center, office building, etc.? Did your client recently buy the real estate at a value less than the assessed value?
You do not have to have all the answers, you just need to start a conversation.
Looking Out for Your Clients.
If you think your client’s real estate might be overvalued (i.e., over taxed), then let your client know. If you are right, your client has the legal right to challenge the assessor's valuation. If your client succeeds and their property tax burden is reduced, then you just put money in your client’s pocket.
Just remember each state has a different real estate tax scheme and, as a result, different procedures to challenge the valuation.
In Ohio, for instance, there are limitations on who can file a complaint, sign a complaint, argue for a reduced value, when a complaint can be filed, how often a valuation can be challenged, what evidence is required to obtain a reduction, etc.
Generally, Real Estate is to be Valued at Market Value.
Fannie Mae's Selling Guide provides this definition of market value:
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
buyer and seller are typically motivated;
both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;
a reasonable time is allowed for exposure in the open market;
payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Do not sweat the details as to how the assessor values the real estate or how the process to challenge the value works. You can cross those bridges later. Just start the conversation and get the ball rolling.