Investing in Southwest Washington real estate offers a lot of potential. As every investor knows, however, there are also plenty of expenses that come with buying and
renting out a home. This is an expensive market, but those costs are offset by high rental values and quickly appreciating home values.
There’s also the matter of taxes.
You’ll have to pay federal income taxes on the rent you earn, but you’ll also have plenty of deductions that you can take for things like maintenance, advertising, and
property management services.
It helps that Washington State has no state income tax. You’ll save some money there.
You will, however, have to pay property taxes on the rental properties you own.
As an investor, you need to be a responsible taxpayer. Collecting taxes is one of the ways local governments pay for the services needed in the community. While properties in our market are expensive, there is some good news: The Washington State Constitution limits how much tax rates can increase in a given year. This will ideally make your taxes more affordable.
Calculating Your Washington Property Tax
Property taxes are a significant expense for any property owner, and as a landlord in Southwest Washington, it pays – both literally and figuratively – to understand how they're determined.
Taxes on real estate
in Washington account for approximately 30% of local and state revenues. As we mentioned, those property taxes pay for local services, including parks, public schools, fire stations, and other amenities and conveniences that
attract tenants to your property. You have a vested interest in keeping the infrastructure and services in the community strong.
In Washington, your tax bill depends on two factors:
Assessed Value
Tax Rate
What you owe is typically calculated by multiplying the assessed value of your property by the current tax rate, which is expressed in millage. The assessed value may be different from your property's market value, and understanding this distinction can make a huge difference in your tax obligations.
There is some stability in how you budget for your property tax payments because of the laws that limit the annual growth of property taxes.
You'll get your property's assessed value once a year from the local county assessor. These assessor’s offices will also conduct physical inspections of your investment properties at least once every six years.
That’s the assessed value. The tax rate, on the other hand, will depend on the spending needs of your county's government.
What makes Washington different from other states is that its property taxes are divided into two main categories or groups: Voter-approved special taxes and Non-voter approved taxes. Voter-approved taxes will generally pay for particular purposes, such as funding a public project. Non-voter-approved taxes are generally spent on operations in a particular district.
Maximizing Tax Deduction Benefits
As a landlord, you have the right to claim deductions that aren't available to homeowners who occupy the properties they own.
For instance, when you pay for
repairs at your property, you may be able to claim the expense as a tax deduction, thereby lowering your tax burden. Furthermore, investment properties often qualify for mortgage interest deductions and property depreciation, which can significantly reduce the amount of income tax you pay. Keeping detailed records of all expenses and consulting with a tax professional can ensure that you are capitalizing on every possible tax break.
When and How to Pay Washington Property Taxes
Most property owners will receive a tax bill in February. You must pay at least half of your bill by April 30th. The second half would be due October 31st. Not paying taxes on time will often result in interest, penalties, and other severe consequences. Your tax payment will become delinquent as soon as you miss the deadline. You never want a tax bill to be unpaid for three years. This will result in your country issuing a Certificate of Delinquency, which could potentially start a foreclosure process.
Appealing Your Assessment: Knowing When and How
While property tax assessments are designed to be fair, mistakes can occur.
If you believe your property is overvalued or that the tax assessment doesn't properly reflect the market, you do have the right to appeal the decision. In many cases, a successful appeal can result in a lower tax bill.
In Southwest Washington, the appeals process may vary by county, and it's advisable to familiarize yourself with the local procedures. It's often a good strategy to provide independent appraisals or recent sales of similar properties to support your appeal. Talk to your property manager for some extra advice and support on what can be a cumbersome but potentially worthwhile process.
Tax Planning that’s Proactive and Preventative
Successful tax management is about more than just paying the bill; it's about understanding how your property value is assessed, the available deductions, and having a proactive plan in place. By taking the time to learn about the property tax system in Southwest Washington, and leveraging the resources available to you, you can ensure that you're not paying more than necessary.
We are not accountants, and the information we’re providing to you is based on our experience as property managers in Southwest Washington. It’s always a good idea to seek help from a tax professional. They can guide you through the complexities of the tax system and offer you personalized advice to maximize your tax benefits.
If you have any questions about what we’ve discussed, we’d be happy to talk with you more. Please contact us at SunWorld Group. We manage investment properties in Vancouver as well as Longview, Kelso, and the surrounding areas.
