How Property Taxes Apply to Vacant Land



by Laura Mueller

Property taxes apply to all land investments, regardless of whether you’re living on the land, building on it, or making an income off of it. That means that if you own vacant land, you’re going to have to pay property taxes on it—though you may also be eligible for some pretty decent deductions.

Here’s what to know about property taxes on vacant land, plus a quick look at what types of deductions you might be eligible for.

How property taxes are calculated on vacant land

The amount of property taxes that you owe on vacant land are calculated by your county tax assessor and are usually based on the “best and highest use” potential of the plot—i.e. its most profitable use. Even so, you can expect that the amount you’ll owe for vacant land is much less than the amount you’d owe for improved land.

Depending on where you live, you may have state specific rules that govern property taxes on vacant land and how much they can increase year after year. In California, for example, Proposition 13 dictates that the assessed value of your vacant land cannot go up by more than 2% in any given year, regardless of other changes that may have impacted its use and profit potential.

What if you disagree with the assessed value of your land?

It’s not uncommon for land owners to find themselves facing higher property taxes than they anticipated. As a good rule of thumb, it’s always a good idea to look at the property tax history of a plot of land prior to purchasing it so that you can get a heads up on what you’re in for. But if you buy vacant land and think the assessed value is too high—or if you think it’s gone up too much in the past year—then you do have some potential recourse.

To appeal your property tax assessment, start by digging into the data. Pull up your property’s record card and look for discrepancies in the description of your land, since if they exist you should have no trouble getting a fast adjustment. If that doesn’t work, look to the comps and your land itself to make a case for why the assessed value is too high. You can then take this information to your county, where you’ll go through a formal appeal process.

Note that you’ll likely face limitations on when you can appeal your vacant land property taxes. For instance, expect that you won’t be able to place an appeal until a new assessment comes out after purchasing, and that from there you may have between 30 and 90 days to launch your case.

Vacant land tax deductions

On the bright side, as a land investor you are eligible to write off certain expenses related to owning your vacant property, and that includes your property taxes. You can also write off the interest that you pay on your land loan. Both of these expenses will go on your Schedule A tax form, which covers personal itemized deductions.

Keep in mind that under the Tax Cuts and Jobs Act (TCJA), certain deductions that used to be standard for investors of vacant land—think improvements, maintenance fees, and legal and accounting fees—are no longer viable write-offs unless you are a land dealer purchasing property for a quick turnaround sale.

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