Will Your Real Estate Taxes Rise?
April 20th, 2010
When you convert an owner- occupied condo into a rental property, your real estate taxes may rise. Although rules vary by jurisdiction, here are two common reasons taxes increase:
First, some jurisdictions provide a “Homestead Exemption” for owner-occupied residential real estate. This benefit exempts a
portion of the property’s value from taxation. If you convert your condo to a rental, you normally lose this exemption.
Second, owner-occupied residential real estate is usually taxed at a lower rate than non-owner occupied residential real estate. That is because the non-owner occupied property is assumed to be held for investment purposes. Accordingly, it is taxed at a higher rate.
How will the tax assessor know when you converted your condo to rental status? You are going to furnish that information on your next federal and state tax return. You report your real estate rental income and expenses on Schedule E of Form 1040.