The huge increase in property values during the pandemic was reflected in the huge increase in property valuations during the reassessment in 2023 which will result in huge property tax bills early next year. The previous repeal of the Gallagher Amendment by voters in 2020 has not helped this by removing the guard rails on the increases. Proposition HH has been introduced to provide some relief to Colorado tax payers. It is on the ballot on November 7th. Here are the details that will help you make a good decision.
Property tax assessment and appeals
In Colorado, property tax assessments are calculated by the county assessor’s office every other year, on the odd year. Those valuations are created using comps for an 18 month period ending the previous June. If sales are limited, they can look back further but more recent sales are preferred. Homes are not evaluated individually but grouped together based on similar characteristics. Because properties can be very different, homeowners have a limited opportunity to appeal the new valuation and state their case as to why their property is different. The county will review the appeal and make a determination if a reduced value is justified.
This year, Summit County received more appeals than in any year for the last 15 years. Unfortunately, more than half received no adjustment in their valuation, according to a Summit Daily article. If you did not appeal but would like to, you have another opportunity in 2023. Odds of an adjustment, however, seem to be less than 50%.
Gallagher Amendment Repealed
In 2020 Colorado voters repealed the Gallagher Amendment. That amendment lowered the residential tax rate as valuations increased. That kept the amount of a property tax increase in check. The repeal locks the residential tax rate at 7.15%, although that rate has been temporarily adjusted to 6.76% in 2023 and 6.96% in 2024. It is a likely assumption that if the Gallagher Amendment was still in place, that tax rate would have been adjusted lower with the 2023 valuations in order to keep the required balance of residential and commercial tax revenue. That rate reduction would lower the current amount of property taxes due by homeowners.
In an attempt to come up with another solution to lower the incredible increases in property tax bills, lawmakers have decided to put Proposition HH on the November ballot for a voter approval. Unfortunately, this proposition is very complex and hard for all of us to easily understand. As a result, there are a variety of interpretations as to what a voter approval will mean. Of course, most of the interpretations out there have an agenda and just tell the side of the proposition that they want people to know.
Here’s what Prop HH says in a nutshell
- The residential tax rate will adjust from 6.76% for 2023 to 6.7% through 2031. In 2024 the temporary tax rate is 6.96%. It expires in 2025 and returns to 7.15% unless HH passes. (This is a correction to my original post.)
- Residential homeowners will receive a $50,000 reduction in value for 2023 and $40,000 in 2024. In years 2025 to 2032 primary homeowners will continue to receive the $40,000 reduction in valuation, however, there is no reduction if that home is not your primary residence. Qualifying seniors receive higher reductions. More on this to come. In 2023 residential homeowners are already receiving a $15,000 reduction in value so passing Prop HH only increases that by $35,000.
- For example, if your home valuation is $700,000 for 2023, subtract the $15,000 reduction then multiply it by the tax rate, currently 6.76%. In this case the assessed value is $46,306. Multiply that amount by the mill levy. Mill levies vary based on the neighborhood the home is in. It breaks down where the money goes, places like fire departments, schools, water & sewer districts, etc. You can find your Summit County area mill levy by finding your property here, Click on the Show Detailed Data button, then Est tax/Tax rate button. That will bring up the details and total of the mill levy. This is just an estimate. The mill levy for 2023 is not set yet. Let’s use the mill levy of 57.396 for this example. Multiply $46,306 by .057396 and the annual taxes for this property are $2657.78. If the valuation decreases by $50,000, that comes off the top and this calculation starts at $650,000 instead of $685,000. The tax rate in Proposition HH is reduced to 6.7%. Now the taxes due are $2499.60. A reduction of $158.18.
- The amount of the allowed revenue cap for TABOR adjusts annually by inflation and population. Proposition HH will also add a 1% increase annually. The state will use this increase to make up the difference to local governments and schools for revenue lost due to the above discounts. The state can also use up to $20 million for rental assistance. Currently, any excess funds collected must be returned to the taxpayers via a TABOR refund. While there is no guarantee of a TABOR refund in the future, the odds of it are lower when the cap is increasing each year. If there are refunds due, the amount would be the same for everyone in 2023 regardless of income. Currently those that earn more get a larger TABOR refund. Unless the legislature chooses to extend that flat rate payment, it will return to the tiered scale in 2024.
- Prop HH also creates several new subclasses of real estate. A non-residential lodging category, Agricultural property and Renewable energy production categories on the non-residential side. For residential properties it adds Primary residence, Multifamily primary, Qualified senior and Multifamily qualified senior categories. The subclasses that will impact most people are how they are breaking down single family residential; into primary, senior & everything else. In 2025, homeowners will need to apply to be in the more favorable primary or senior categories. Those seniors that qualify for a senior exemption will still get that additional $100,000 reduction. With Prop HH, that will now be portable. If a senior qualifies for the exemption they can move to a new home and take that exemption with them.
- Proposition HH will expire at the end of 2032 unless the legislature decides to extend it.
What this all means IMO
Now we get to the opinion part. I see this as a small, temporary decrease in property taxes and a small but longer term reduction in any Tabor refunds Coloradoans will see. I also see it as opening the door to higher tax rates on non-primary single family homes. While this Proposition only takes away a $40,000 reduction in value beginning in 2025, the creation of this taxing category gives the state the opportunity to change that at anytime in the future. There has been talk for a few years now about changing the rental property tax rate to the same rate as vacant land and commercial property, currently 29%. I think this is the first step into seeing that talk turn into reality.
Tax rate example
Let’s consider that same $700,000 property to see what the change to a 29% rate would do to the tax bill. Because this tax rate is not currently in effect, I am not going to allow for the $30,000 reduction in value commercial properties will get in 2023. We multiply $700,000 by 29% and come up with an assessed value of $203,000. Then multiply that by the same mill levy of 57.396 (.057396) and you get $11,657.39. That’s an increase of nearly $9000 per year in taxes!
The writing is on the wall
Maybe the tax rate won’t go all the way to 29%. However, the reasoning for the increased tax rate talk is so short term rentals are on the same playing field as hotels which pay the commercial rate of 29%. Maybe they won’t raise the rate on all the second home owners. Perhaps it will just be those non-primary owners that have a short term rental license. I should take this opportunity to point out that when the short term rental licenses were first required, there were smaller fees and no limits on the number of licenses. Immediately some local governments put a halt to new licenses. Next came higher fees and caps. Breaking out non-primary residences identifies a state taxing category for the purpose of charging a different tax rate down the road. The writing is on the wall with this portion of the legislation.
According to an article in the Aspen Times, a previous version of this bill already had a provision to raise the tax rate on non-primary, residential properties. After opposition was encountered, it was removed and therefore didn’t make it into the proposition currently on the ballot.
If HH is voted down, another idea will come forward to help lessen the burden of the upcoming property tax bill. There’s no guarantee it will be a better idea but it most certainly is not a choice of HH or nothing. If nothing changes and we make it through to 2025, our next property tax valuation, we will likely see a slight decrease in valuations. In addition, if you did not appeal your 2023 valuation but have decided you should have, you can still do that in 2024. It is known as an abatement.
Proposition HH looks good on the surface with the promise of property tax reductions for homeowners that are facing huge increases. Below the surface it is not what it seems. In our opinion, Prop HH is not good for Colorado. In addition, if passed, Proposition HH will be facing legal battles that could delay any benefits of the passage until a determination is made by the courts.
This is a very complex and confusing bill. I have seen several articles and websites that contain incorrect or incomplete information. We have tried our best to make sure this is accurate and complete information. If you have questions or see omissions, please let us know. If you would like to read it yourself, here’s a link to the bill.