I have gotten many e-mails letting me know that they got their property tax bills and they didn’t go up nearly as much as I said they would. Do not worry, I’m not lying that your property taxes are going to skyrocket. When will you see the tax increases? How does the revaluation cycle of real estate work in Colorado? What happens this year and then next year? How are property taxes calculated in Colorado?
Why will you not see a large increase in your Colorado property tax bill this year?
Remember in Colorado properties are reassessed every odd year. This means 2021 is a reassessment year. The values are based on data up to June 30th 2020. The new property values will be determined in the next several months, and notices will typically be sent by May 2021.
Property owners will then pay 2021 taxes in 2022. What this means is that the appreciation (on average around 30%) will flow through to your tax bill that you will see next January (2022)
What is the actual calculation for property taxes in Colorado?
Your property taxes are calculated by multiplying the mill levy or tax rate by the assessed or taxable value of your property. Please keep in mind that tax rates are not finalized until December of each year and are subject to change. (source: Douglas County Assessor)
EXAMPLE FOR RESIDENTIAL PROPERTY:
The actual value of Mr. Brown’s home is $400,000. The Notice of Valuation shows the current assessment percentage is 7.15 percent.
Actual Value x Assessment Percentage = Assessed Value
$ 400,000 Actual Value x 7.15% Assessment Percentage = $ 28,600 Assessed Value
To determine the property tax, multiply the assessed value times the decimal equivalent of the total mill levy. A mill is equal to 1/1000 of a dollar. A tax rate is the mill levy expressed as a percentage. Thus 98.42 mills = 9.842 percent or .09842 as the decimal equivalent.
If Mr. Brown’s assessed value is $28,600, his taxes will be:
Assessed Value x Mill Levy = Taxes
$ 28,600 Assessed Value x .09842 Mill Levy = $ 2,814.81 Taxes
How do Colorado Property taxes work now?
Under Colorado law there are amendments that govern how taxes are calculated. One of the major drivers of taxes is the Gallagher amendment. The Gallagher Amendment is like a balancing scale with two arms. On one side are residential property values. On the other, non-residential values, such as commercial properties including minerals, like oil and gas. Residential property values can’t exceed roughly 45% of the statewide tax base whereas commercial properties account for the additional 55%. When home values rise, or non-residential values fall, it tips the scales out of balance, and residential taxes are cut. The inverse can also occur with commercial property values dropping causing the scale to once again tip out of balance.
The Passage of Amendment B changes the game.
I was surprised this passed and that voters in our current economy voted for such a large property tax increase. The Gallagher amendment drastically slowed the growth of residential property taxes. According to Colorado Public Broadcasting, taxable property values in Denver have doubled in the last 20 years. Without Gallagher, that taxable base might have risen by a factor of five. Without Gallagher now and the passage of amendment B, your taxes will go up, up, and away! With the passage of amendment B, in 2021 ( a revaluation year as Colorado values properties every odd year) there is going to be quite the sticker shock on tax bills as residential values have gone up close to 40% in the last two years in Denver and throughout most of the mountain communities. Without Gallagher tax bills will rise in lockstep with property appreciation from now to eternity. The higher property tax rates will continue to contribute to the unaffordability of Denver and many cities throughout the front range and the resort communities.
What about TABOR
TABOR stands for the Taxpayer bill of rights and it seeks to limit the growth of Government based on population increases and inflation. Theoretically this would keep property taxes in check, but All but four of Colorado’s 178 school districts have already “de-Bruced.” (meaning they are not bound by TABOR and can continue to collect unlimited property taxes). Eighty-five percent of Colorado’s municipalities and 51 of 64 counties have also convinced their voters to let them opt out.
Other large taxes on the horizon
Denver County had a slew of taxes on the ballot. From mill levy increases, bond initiatives, and sales taxes. Here are some of the new initiatives that Denver County residents will now be paying.
- 2A: Climate tax: authorizing the city and county of Denver to levy an additional 0.25% sales tax generating an estimated $40 million per year to fund climate-related programs and programs designed to reduce greenhouse gas emissions and air pollution, thereby increasing the total sales tax rate in Denver from 8.31% to 8.56%.
- 2B: authorizing the city and county of Denver to levy an additional 0.25% sales tax generating an estimated $40 million per year to fund housing and homeless services, thereby increasing the total sales tax rate in Denver from 8.31% to 8.56%.
- 4A: authorizing the district to levy an additional property tax of $150 per $100,000 in assessed value (1.5 mills) in 2021 and to increase that levy by up to $100 per $100,000 in assessed value (1 mill) every year to a maximum rate of $400 per $100,000 in assessed value (4 mills). Going into 2020, residential property was assessed at a rate of 7.15% of market value and non-residential property was assessed at 29% of market value. Under a 7.15% residential property tax assessment rate, a home with the median market value of about $470,000 would be assessed for taxes at $33,605, which means a 1 mill tax would be $33.6.
- 4B: authorizing the district to increase its debt by up to $795 million in bonds with a maximum repayment cost of $1.5 billion and to continue the district’s existing property tax rate to repay the bonds.
In a nutshell in Denver, sales tax rates increased by .5% and the mill levy increase by 4 mills, so assuming the median home price of 606,000, the tax bill would increase by about 2400/year minimum, if Denver continues to appreciate, which it likely will that number will be closer to 3000/year into perpetuity!
Property Taxes are rising, hang on tight to your real estate!
I’m amazed at the appetite for large tax increases in the economic cycle we are in. It is a bit ironic, that Denver passed massive tax hikes including one to fund housing. The higher tax rates are pushing out many of the constituents that they are trying to assist with housing! Let’s do a quick calculation of what 2021 will bring to everyone’s tax bill.
Recall properties are reassessed every odd year so 2021 and 2023 are reassessment years, there has been huge appreciation the last several years in most areas of the state and this appreciation looks to continue in Denver and the mountain resort communities. I did two scenarios, one for a median home in the front range (not Denver county) and then one for Denver county factoring in the new property tax initiatives:
| Ghallagher is repealed; Non Denver County | |||||||
| Property value | assement rate | assessed valuation | Mill Levy | taxes | % change from 2019 | ||
| 2021 (15%/year | 650000 | 7.15% | $ 46,475 | 0.0812 | $ 3,772 | 30% | |
| 2023 assume (10%/year) | 780000 | 7.15% | $ 55,770 | 0.0812 | $ 4,526 | 56% | |
| 2023 assume (15%/year) | 845000 | 7.15% | $ 60,418 | 0.0812 | $ 4,903 | 69% | |
| In Denver county | |||||||
| Ghallagher is repealed | % change from 2019 | ||||||
| 2021 (15%/year | 650000 | 7.15% | $ 46,475 | 0.0812 | $ 4,422 | 52% | |
| 2023 assume (10%/year) | 780000 | 7.15% | $ 55,770 | 0.0812 | $ 7,646 | 164% | **.004 mill levy increase |
| 2023 assume (15%/year) | 845000 | 7.15% | $ 60,418 | 0.0812 | $ 8,283 | 185% | **.004 mill levy increase |
Will tax increases impact property values?
At some point, the large property taxes will begin to impact property values as borrowers will need even more income to qualify for a loan (taxes and insurance are included in the mortgage payment calculation). Income is not rising nearly as fast as real estate appreciation and taxes so less will be able to afford the house. Furthermore, many commercial properties will also see a rise in taxes and these tax increases will have to be passed on to the tenants. Note, the tax increases will not only impact property owners, anyone who pays rent will also see higher rents as the tax increases flow through to residential and commercial tenants
Summary
For all the folks that have e-mailed or called wondering am I crazy with my property tax predictions. Rest assured that you will see a huge increase this year, when you get your new assessed value and on your new property tax bill in January (2022).
Do not worry, you will get “surprises” in every odd year going forward. One of the largest drivers of appreciation in Colorado is the number of relocators from higher cost coastal areas like California or New York. Many times, they are leaving these areas due to large property and income tax bills. As Colorado continues its upward trajectory of taxation, it will soon join the coastal club of expensive cities and at some point, see more migration out than in as people move to the next up and coming city with lower taxes. When this will happen is anybody’s guess, but with the repeal of the Gallagher amendment and rapid increase in taxes it will happen sooner rather than later.
Additional Reading/Resources
- https://www.jeffco.us/DocumentCenter/View/21255/Property-taxes-and-property-values-during-a-pandemic
- https://www.cpr.org/2020/10/12/vg-2020-colorado-amendment-b-repeal-gallagher-amendment-explained/
- https://www.coloradopolitics.com/2020-election/election-2020-denver-ballot-measure-election-results/article_e679a640-1d86-11eb-b4ea-bb19ad358ae9.html
- https://www.denverpost.com/2019/06/20/tabor-colorado-taxpayer-bill-of-rights/
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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