Giovanni Valle is a licensed architect and LEED-accredited professional and is certified by the National Council of Architectural Registration Boards (NCARB). He is the author and managing editor of various digital publications, including BuilderSpace, Your Own Architect, and Interiors Place.
Building a garage can often turn out to be a costly affair, sometimes far beyond your expectations, because of the hidden costs of the project. The costs that didn’t make it into your initial budget plan and that may not start appearing until after you’ve built the space can impact your finances significantly. This article delves into the topic of whether building a garage will increase your property taxes, affecting your cost-reward analysis considerably.
Building a garage will increase your property taxes. By constructing a garage, you’re adding value to your property, which in turn may affect the value upon which your taxes are calculated.
In this article, you will learn more about:
- How building a garage increases taxes.
- When can you deduct a new garage on taxes?
- How to limit the increase in taxes as much as possible.
How Building a Garage Increases Taxes
The process of assessing the value of a property is affected by several variables that make it challenging to speak in definitive ways when it comes to whether an investment will increase the property’s value.
Garages, considering the nature and the average size of the investment, could increase your property’s value up to 5%, which increases the amount upon which your taxes are assessed.
Property taxes are calculated based on the evaluated value of your real estate, making them an ad valorem tax. This particular kind of tax is usually paid annually, and the amount you owe will change and fluctuate along with your property’s assessed value.
Theoretically speaking, a new investment or addition in your house, like a garage, will only drive up your taxes if it is estimated that this specific investment has added value to your home. Therefore, if the addition isn’t considered to increase your property’s value, the taxes won’t be affected either.
When you take into consideration the average size of an investment like building a garage, as well as its practical and sought-after qualities, your property’s value will increase along with its taxes.
There is a common misconception that property taxes are not calculated upon functional renovations, only those considered a luxury. In reality, they will increase along with your home’s value, no matter the nature of the investment.
There is a reason why home improvements like building a garage are called investments. They are costly, and they come with hidden expenses, but the increase in your property taxes makes up only a fraction of the value you will be adding to your home.
Building a garage can be beneficial for practical and financial purposes for many families. You just have to consider every added cost carefully to make an informed decision that will allow you to build within the limits of your budget.
When Can You Deduct a New Garage on Taxes?
If you are building your garage for work-related purposes, your property’s added value will likely not hurt your taxes.
You can deduct a new garage on taxes if you use the space for business or work-related purposes. In this case, the property’s taxes would be calculated upon the house’s total value, and then you would be able to take a deduction for this allocated work environment.
For example, if you can afford a more considerable investment, you can include a home office or workspace within your garage. That would mean that the space, or that specific section, along with its maintenance costs and utilities, could be written off as a business expense.
The same goes for any business-related procedures that you might want to conduct in your garage. So if you would like to use this space as a warehouse or workroom for your business, its value along with the maintenance costs would qualify as tax-deductible.
How To Limit the Increase in Taxes As Much as Possible
On the other hand, if you’re not building the space for work-related purposes, you can keep in mind some tips to limit the tax increase. This includes things such as avoiding certain materials, not turning the garage into a living space, the timing of the addition, and possible exemptions.
You should follow these tips only if your main goal is keeping your tax payments as low as possible and adding value to your home isn’t on your list of priorities:
- Try to avoid materials like concrete and cement, as they tend to be taxed higher due to their high carbon footprint. If possible, try to go for recycled or more environmentally-friendly options instead.
- Don’t add a bathroom to your garage. Not only does a bathroom increase the space’s value considerably, but it would also require permits and expensive hydraulic and electric installations that would most probably impact your property’s assessment.
- Try to keep the garage solely for its intended purpose and don’t add investments that would make it resemble a living space. That’s because living spaces are taxed considerably higher than garages because of their functionality. So even though creating a second living room could be practical and convenient, if you’re trying to keep your taxes low, it might not be beneficial to you.
- Try to make the addition right after your last evaluation. A newer investment will be appraised as more valuable, therefore if possible, don’t build your garage right before a property value assessment, as its worth will most likely be inflated.
- Look for exemptions that might help you out. You can qualify for tax exemptions if you fall into specific categories. The categories vary depending on the state/country you’re in, but usually, if you’re a senior, veteran, or person with disabilities, you may qualify for some form of tax exemption.
Property taxes result from the multiplication between the most recent evaluation of your property and your municipality’s tax rate.
Therefore, an investment like a garage will likely increase the value of your property, which in turn, increases your property taxes as well. If you build your garage for work purposes, this increase in taxes will be written off. Otherwise, keep the tips from this article in mind to limit this increase.
- Romans: How much value does a garage add to your property?
- Investopedia: Ad Valorem Tax Definition
- IRS Video: Lesson 4 – Business use of your home
- Princeton: Cement and Concrete: The Environmental Impact — PSCI
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