Paying property taxes is the bane of every property owner in Texas. No one likes to do it, but the state and local agencies require property tax payments on any property that you own. Most of your taxes are based on property appraisals issued from the county appraisal district (CAD). If you live in or around Houston, then you will be working with the Harris County Appraisal District (HCAD). Sometimes, the district will get things wrong when they carry out their assessments. In some cases, they may even neglect to account for property improvements. Their appraisal, then, would be much less than the actual property is worth.
Understanding Omitted Property
What has just been described is referred to as “omitted property”. If the chief appraiser at the HCAD fails to account for any property improvements, then you will see a much lower property appraisal and a much lower tax bill, as a result. This is great, in theory. Imagine buying an empty plot of land for $20,000. You can let the property sit vacant for a while and only have to pay taxes on the $20,000 value.
Then, one year, you decide to build your dream home on the property. When the house is finished, the value of the property skyrockets to around $300,000. If the CAD never accounts for the house, though, you may still only be liable for the $20,000 value of the property without the land. Again, this seems perfect in theory. You get to live in your dream home while only paying the property taxes for a vacant plot. This can go on for several years with no indication of stopping.
The Pitfalls of Omitted Property
Of course, you’re really playing with fire if you try to coast on unreported property improvements. Your Harris County property tax bill wouldn’t be that high for a while, but if the chief appraiser catches on; you will be in for a surprise. If you make an improvement to your property without reporting it to the CAD, then you may be liable for delinquent taxes and interest for all the years in which you did not pay the full amount. To be honest, it’s only a matter of time before the chief appraiser notices that you’ve made improvements on your property, and you won’t be able to cheat on the system for that long.
In the example above, you would theoretically owe back taxes and interest on $280,000 ($300,000 – $20,000) for every year that you underpaid. Let’s say that you underpaid for a total of five years. At three percent interest per year, you would owe well over $40,000 in delinquent property taxes. So, although you might think you’re saving a lot of money by omitting your property, you may be on the hook for major back taxes. In Harris County where median appraisal values top out at about 97% of market value, you generally don’t have to worry about omitted property. If, however, you think you’re going to get a huge discount indefinitely, you would be wrong. Always report any property improvements to avoid having to pay delinquent taxes.
If you haven’t reported your property improvements or if you have any question regarding omitted properties, contact O’Connor & Associates today.