If you’re planning on buying a home, you might wonder whether property taxes are lower on townhouses and condos. It seems plausible enough: Smaller home, smaller tax bill, right? But your property’s square footage is just a small factor that goes into determining how much property tax you owe. Let’s look at what goes into that number and if it is, in fact, lower for smaller properties.
Difference between a townhouse and a condo
It helps to understand that the distinction between a townhouse and a condo comes down to how the property is sold to you. The general rule of thumb: If you purchase a condo, you own just the inside of the building. If you purchase a townhouse, you might own the property outside as well per the bylaws of your homeowners association.
“A townhouse has land under it that you own, and a condo does not,” says Joyce Mitchell, a real estate agent with Mitchell & Associates Real Estate in Bigfork, MT.
When you buy a condo you co-own communal property beyond your living space. So will this distinction make a difference in your tax bill? Sort of.
What affects property taxes
There are two main factors that go into the amount you have to pay each year in property taxes. The first is your home’s assessed value that’s determined by an assessor who looks at things like the acreage, square footage, number of bedrooms and bathrooms, and comparable homes nearby. The other factor is the mill levy, or tax rate for your area, usually expressed as a percentage. Mill levy is based on the quality of the public amenities offered such as your town’s public schools, police force, and number of parks. The more amenities, the higher your mill levy will be.
Taxes for single-family homes, condos, and townhouses are calculated the same way, says Larry Friedman, co-founder and principal of SDF Capital, a real estate investment company based in New York’s Westchester County. “It’s based on assessed value and then multiplied by mill rate to determine tax amount.”
Property taxes on townhouses and condos are generally lower
Because of a number of factors, including square footage and number of bedrooms, you can typically expect to pay lower property taxes on townhouses and condos than on single-family homes.
“A condo or townhouse has less space per taxpayer than a single-family home,” says Richard M. Prinzi Jr., CPA and co-founder of F-Sharp Tax Management Services. “In a condo living situation, many taxpayers will share in the tax due for the land and the common areas” such as hallways, lobby, and stairs, he says.
The owner of a townhouse is usually solely responsible for paying taxes on the home and the land it’s built on, but that square footage, on average, is far less than the typical single-family home. Therefore, the taxes for a condo or townhouse are usually lower.
Taxes vary based on where you live
That said, different states and communities have their own real estate tax rules. For example, in California, Proposition 13 mandates that Mello Roos Bonds (which pay for community infrastructure) cannot be based on a home’s value, says Greenside Properties broker Patrick Morgan. Instead, these rules are usually based on a unit’s square footage, usage, and lot size. You can check with your city’s department of finance to get your local tax information.
HOA fees and other added costs
Of course, living in a townhouse or condo can come with HOA fees, which can offset those savings on property tax.
According to Mary Jo Fiore-Posterli, a Realtor® with Coldwell Banker in Lake Forest, IL, condos and townhouses can come with HOA or condo association fees. These associations are elected boards that manage amenities and maintain standards for your complex.
“Depending on the townhome or condo community, you may have an association that has a pool and a tennis court, and someone has to pay for the upkeep of that,” Fiore-Posterli says. As the property owner, you would pay a monthly fee through the association. HOA fees are typically higher for condos than for townhouses.
Of course, your fees will be lower if you don’t have a pool or other similar amenities. Some communities even have you pay for your heat through the HOA fees.
No matter where you decide to live, make sure you do the math and consider HOA fees and the like before deciding if purchasing a smaller property really will translate into lower monthly or annual costs for you.
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