AUGUST
2003

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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08-28-03

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Reassessment: How Old Is Your House?


Property tax bills have been mailed in about a dozen counties. In some counties, the bills created an uproar, in others, hardly a peep. What's going on?

It's early yet (with about 80 counties to go), but, so far, the thing that matters most for tax bills is the age of the house. Owners of older homes are seeing the biggest tax increases. Many owners of newer homes are seeing tax cuts.

The assessment system we used up until last year gave a break to older homes. The assessor would use a thick manual of rules to figure out how much it would cost to build the house today. Then, the assessor would apply a depreciation rate to account for age. An average 10-year-old house had its value reduced by 15 percent. An average 70-year-old house saw a 60-percent reduction. Under our new market value assessment system, values are adjusted to account for actual selling prices. Older home assessments must increase more to reach their selling prices.

Evidence from the Indiana Legislative Services Agency shows that, in Marion County, houses built since 1960 have smaller increases in their assessments, averaging about 70 percent. Houses built before 1940 have bigger assessment increases, averaging about 175 percent--their assessments almost tripled. Owners of the newer houses saw tax cuts, on average, even in Marion County. Owners of the older houses saw the big tax hikes. Many tax bills more than doubled.

You can see this in action for Tippecanoe County, thanks to the work of the county's computer staff and the LafayetteJournal and Courier newspaper. The newspaper's Web site, http://www.jconline.com, has a section called "property tax assessment." Click on "look up property tax," type in a street name and you can see the taxes on the houses for 2002 and 2003.

I know this seems like an invasion of privacy, but property tax assessments and tax bills have always been public information. You can get the same information in most county courthouses.

Type "Sullivan Street" in the address box. That's the street where I live, in a newer housing development called University Farm. The houses on Sullivan Street are 10 to 20 years old. You'll see that all of my neighbors and I received tax cuts in 2003. That's because the depreciation rates used for our houses under the old assessment system were small, so our assessments went up only 56 to 73 percent. 

Now try "Sugar Hill," which is a street in a desirable older neighborhood just west of Purdue. Most of these homeowners saw tax increases. Their assessments went up more, by as much as 164 percent, so most of their tax bills increased at least 40 percent. It happened because these older houses got the big depreciation breaks under the old assessment system.

The new market values of the Sugar Hill houses are pretty high, most topping $200,000. The folks in the Meridian-Kessler area of Indianapolis saw tax hikes too, and many of their houses are even more valuable. One might get the impression that it's just upper income people who are paying more. They can afford it, so what's the problem?

Go back to the Web site and type in "Melody Lane," and you'll see the problem. This street is in a neighborhood of older, modest houses, with market values under $100,000. The assessments on all of these houses just about tripled, and their tax bills increased 49 to 62 percent--big tax hikes for people who are not rich.

We suspect two things from the results of reassessment so far. First, older homes see bigger tax increases, while newer homes often get cuts. The owners of the older homes have complained, loudly, while the newer homeowners have kept their heads down. But statewide, so far, close to half of all homeowners have seen tax cuts.

The second thing we've learned is that it is not just upper-income people who are seeing big tax hikes. Owners of lower-valued older homes have also seen their taxes rise.

Perhaps the legislature will debate policies to ease the difficulties of homeowners whose taxes have increased. If so, they'll need to keep both these things in mind.

 

 

Writer: Larry DeBoer,
Editor: Olivia Maddox,