Which home improvements raise property taxes in New Jersey?

❓ Home improvement can dramatically raise property taxes

❓ Which home improvements will raise your property taxes in New Jersey?

😃 One major improvement is actually tax-exempt in New Jersey.

Are you looking to use some of your 2023 income tax refund to make improvements to your home?

Before you do, consider if the upgrades you are planning will wind up costing you more in the form of higher property taxes.

Whether you do the work yourself or hire a contractor, assume that your building code officials are watching and may ask to see any work you’ve done to make sure it is up to code.

The tax assessor may also want to see what you have done in order to determine if the improvement raises the value of your home, and what you will pay in property tax.

Do I have to allow the tax assessor into my home?

No.

In New Jersey you have the right to refuse access to the tax assessor, but that may not be wise.

If you deny access to your property for the purpose of an evaluation for tax purposes, the assessor will likely assume you have made improvements.

In most cases, the assessor will estimate the property at the highest probable value for which the property might sell in the open market.

This will assume that you have made all the improvements and added all the amenities available to other properties in that area, and almost certainly result in a much higher assessment and property tax increase.

Should I sell my home and move, or renovate my existing home?

It’s a question many New Jersey residents struggle with, especially if they decide they want an upgrade or need more space.

In general, any project that requires a permit and/or inspections could trigger your town to re-evaluate the value of your home and lead to an increase in property taxes.

With interest rates near record levels and home values rising, purchasing a new home may not be an option.

More and more homeowners are deciding to renovate their existing home to get the dream property they want.

While this can be a more cost-effective way to get the home amenities you desire and increase the value of your home.

However, a review of building codes, tax assessments, realtor websites and conversations with experienced home remodelers say any plans should come with a warning: Home improvements can also wind up costing you with a significant increase in property taxes.

What triggers an increase in property taxes in NJ?

Each municipality in New Jersey has its own set of rules and requirements for any type of home improvement. So, whether you are doing the work yourself or hiring a contractor, make sure you check with your local government officials to find out what the rules are for your town.

In general, any project that requires a permit and/or inspections could trigger your town to re-evaluate the value of your home and lead to an increase in property taxes.

Many homeowners fail to consider the impact renovations will have on their property tax bills, but experts say it is something you should budget for.

Not all renovations will raise your property taxes, but here is a list of common home improvements most likely to result in a higher tax bill.

A home addition may trigger a tax increase

Homeowners who are hoping to create more living space for a growing family or just in the name of comfort are almost certain to trigger a visit from the tax man.

Basic floor plan expansions such as a new bathroom, expanded kitchen or master suite can cost $100,000 or more.

Zillow estimates home additions can pay off big when you sell your home, adding $150,000 or more to your home’s value and selling price.

However, that increase in home value will result in an increase in property taxes.

Reconfiguring existing spaces can increase tax valuation

Creating more or bigger rooms within your existing space and without an addition is a relatively inexpensive way to renovate your home.

Adding internal walls to create a new bedroom or bathroom can cost as little as a few thousand dollars but can have a big impact on the value of your home.

Some homeowners opt to convert all or part of a garage, attic, or basement into living space.

Adding a bedroom can increase your home’s value by as much as $50,000.

An additional bathroom can add $30,000 of value.

That will surely attract the attention of the tax assessor.

In-ground pool could mean higher taxes

While many homeowners dream of their own backyard pool oasis, installing a pool is one of the worst home improvements in terms of boosting your home’s value.

Forbes estimates an inground pool will only boost home value by about 7%, far less than the cost of installation.

Forbes also notes: “While many homebuyers relish the idea of a pool oasis in their backyards, others won’t consider buying a house with a swimming pool. Some buyers don’t want the responsibility of pool maintenance or extra expense.”

What is bad news in terms of your home’s resale value could be good news in terms of how much it will raise your property taxes.

Towns may view a pool installation differently, but it is considered a “permanent land alteration” and that is likely to trigger a reassessment of your property taxes.

Deck, patio and hardscaping add value to home

Decks and patios are common home improvements.

These projects can be basic, or extremely elaborate including things like an outdoor fireplace, pizza oven, kitchen, bar space and water features.

While a basic deck can cost as little as $15,000, more elaborate patio and hardscaping designs can cost $100,000 or more.

All of these improvements will require a permit and can increase the value of your home by as much as $30,000.

The tax assessor will base your property tax bill on the new value of your home.

Kitchen or bathroom remodel impact on taxes

One of the most popular renovations, a new kitchen and/or bathroom can add substantial value to your home for resale but may not necessarily trigger a big jump in property taxes.

It depends on what types of renovations you are doing.

New appliances and refacing your kitchen cabinets are unlikely to draw the attention of a tax assessor.

That may not be true, however, if you are making major changes to the space and or layout of your kitchen

The same is true for a bathroom.  New fixtures and a new toilet should have little to no impact on your property tax bill, but if you are adding in luxury features like a steam room or custom cabinets and lighting, you may get a visit from the assessor.

Tax impact from new or repaved driveway 

In terms of curb appeal, a new paved driveway has one of the highest returns on investment when it comes to the value of your home.

The job could cost around $5,000, yet could add as much as $20,000 to the value of your home.

Different municipalities may treat this type of improvement differently.  Make sure you check with your local tax assessor’s office before you sign off on the job.

If you are replacing a crumbling or dangerous driveway, you might escape a big tax hit.

However, if it is a “cosmetic” improvement, you are likely to receive a higher tax assessment and a higher property tax bill.

A new roof and what it means on tax bill

This is another one of those case-by-case basis home improvements when it comes to increasing your tax bill.

Most towns treat a new roof as routine home maintenance, as long as you aren’t making major improvements or upgrades.

However, if you are making a major upgrade and/or other cosmetic changes to the appearance of your house while adding the new roof, it could draw the attention of the assessor.

Solar panels and the Solar Property Tax Exemption Act

Renewable energy can be a great investment.

If you purchase your solar system, it can increase the value of your home by as much as $50,000.

However, systems that are leased can actually decrease your home’s value and make resale more difficult.

In New Jersey, even if it increases your home’s value, your property taxes cannot be increased.

New Jersey passed the Solar Property Tax Exemption in 1998, which protects homeowners from having their property taxes increased as a result of installing solar panels on their homes.

Adding an outdoor shed: Ask your tax assessor

Whether you plan to use to store yard tools or as a she-shed, office or workshop, a shed increases your property taxes.

Different towns in New Jersey treat sheds, or any type of outbuilding, differently.

Some towns will only tax so-called “livable” or permanent structures.  Others will tax all outbuildings.

Make sure you talk to your town tax assessor and building inspectors about your plans and understand what you can and cannot do and what the impact on your tax bill might be.

The bottom line

New Jersey has 564 municipalities across 21 counties.

Each town has adopted its own building code and set of rules.

Before you begin any home improvement project, many contractors will encourage you to give a call to your local town hall and talk to them about what you are planning to do.

The clerks, inspectors and assessors deal with these types of issues every day and should be able to give you a reasonable idea of what you can expect in terms of your property tax bill.