To Assess or Not to Assess? Temporary Tax Exemption for New Residential Construction
April 11, 2023
Over the course of 2022, rising interest rates and inflation slowed the housing market frenzy. As a result, for the first time since the early days of the COVID-19 pandemic, residential homebuilders may find themselves with excess inventory. If your company is in this situation, it is important to understand when real estate taxes can be assessed against new construction, including model and spec homes (even when they are being used temporarily as a sales or leasing office), or even partially leased multi-family buildings. It may be later than you think!
Under Pennsylvania law, all real estate, save for a few exceptions, is to be valued and assessed at annual rates. However, the Consolidated County Assessment Law, 53 Pa. C.S. § 8813, et seq., which applies to all counties except for Philadelphia and Allegheny, contains a notable exception that protects residential builders. Section 8813 of the Consolidated County Assessment Law states that new single and multi-family residential dwellings are not permitted to be valued or assessed for taxing purposes until one of the following three things occur: 1) the dwelling is occupied; 2) the dwelling is conveyed to a bona fide purchaser; or 3) the dwelling remains vacant for a period of 30 months. In situations where a building permit is required, the 30-month period runs from the first day of the month in which the building permit was issued. The exemption also applies to improvements to unoccupied dwellings and dwelling unit conversions, so if a building permit was not required for the construction, the 30-month period begins on the day that construction commences.
Additionally, the exemption covers partially occupied new multi-family dwellings. Specifically, the assessment of any multi-family dwelling because of occupancy is only to be on “the proportion which the value of the occupied portion bears to the entire multiple dwelling.” In other words, your company may be entitled to a reduced tax assessment on a newly-constructed multi-family building prior to reaching full occupancy.
Knowing when new residential construction is eligible for taxation can save your company money, particularly during periods of reduced demand in the housing market. If you have any questions about this post, please contact a member of the McNees Wallace & Nurick Land Use Group or the State & Local Tax Group for assistance.