COUNTY PRESS RELEASE
Homeowners in Los Alamos County will receive their 2021 property tax bills within the next two weeks. Most will see relatively little change from last year, but for some there may be a big surprise.
Imagine yourself in a house that you have just bought. You settle in and maybe even do some repairs to make it âyoursâ. Then comes the first week of November and you receive your first property tax bill in the mail. You tentatively open the envelope and suddenly realize that WOW isn’t that bad. In fact, your tax could be much lower than you expected.
Now move forward one year until you receive your second property tax bill. No big deal, you think. You open the envelope without trepidation and – OMG! Taxes have increased by 50%, 60%, 70% or more. How can this happen ?! Well, you’ve just been hit with the unintended consequences of well-meaning state law. The consequence is called âfiscal lightningâ.
Years ago, as more and more people moved to New Mexico, many older residential neighborhoods became gentrified, causing property values ââto rise. Low-income landowners, some of whom owned property that had belonged to their families for generations, were taxed outside their homes. To remedy this situation, the state legislature passed a law limiting annual residential appraisal increases to 3%, regardless of the real market value of the property.
The law capping annual premium increases has several exclusions, including the part of a house that is being renovated. (Non-residential property, such as commercial or vacant land, regardless of zoning, is also excluded from the cap). The exclusion that hits home buyers the hardest, however, is the transfer of ownership. When the ownership of a home is transferred to a new owner, the appraisal is established at market value on January 1 of the following year. This means that in the year a home is purchased, property tax is based on the capped appraisal value of the previous owner. On January 1 of the following year, the appraisal jumps to market value.
Starting in 2007, the market value of Los Alamos homes fell. Although the assessment increases are capped, evaluation decreases has no limit. At the end of 2015, the real estate market recovered and selling prices increased each year to reach the current double-digit rates. As a result, around 90% of residential valuations in Los Alamos are capped. These homeowners are not seeing a dramatic increase in their property assessment. Tax lightning only impacts the purchaser of a residential property.
The following graph illustrates the impact of fiscal lightning. Looking at the median residential selling prices and median residential appraisal values ââon January 1 of each year from 2006 to 2020, the graph shows the disparity between the two values.
From 2006 to 2020, the spread between the median sale price and the median appraisal value ranged from 7.03% to 52.12%. What does this mean in real dollars for the taxpayer who bought a house? Let’s say you bought a home in 2019 for the median selling price of $ 350,000. Your tax bill would have been based on the previous owner’s assessment of $ 265,585. Taxes would be $ 2,205.77.
The following year, January 1, 2020, your appraisal would adjust to market value, $ 412,000. The November 2020 tax bill will be $ 3,369.06, an increase of 52.74%! It is reassuring to know that in the future, increases in your valuation values ââmay be capped.
The law limiting increases in residential dues has other unintended consequences. The NM County Assessors Affiliate, as well as the NM Real Estate Agents Association, have worked over the years to have the NM State Legislature address the loopholes in the law, but to no avail. In the meantime, homebuyers will continue to have the November surprise.
Finally, what does increased revenue mean for tax entities? Not a lot. The NM Department of Finance Administration establishes statewide property tax levies annually using a yield control formula to stabilize income. These levies generally have an inverse relationship to the value of the property. As property values ââincrease, tax levies are reduced and vice versa.