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Idaho property tax vulnerable to housing market changes

Updated: Jul 21, 2023

Idaho residents may be coveting Utah’s property tax laws that account for market value increases. Utah exempts 45% of the market value from property taxes. Whereas, Idaho caps their exemption at $125,000 or up to 50% of the assessed market value of the home. The cap was raised from $100,000 to $125,000 in 2021.

Five years ago, this was a non-issue as Idaho home values averaged $222,464.25 and the 50% of market value property tax exemption was similar to the cap of $100,000, at $111,232.13. However, the difference between the market value of the homes and the exemption cap quickly increased. In 2022, the difference between the 50% of market value exemption and the cap was $109,114.04. This is an 871% increase in the difference between the two values.

Property taxes for an average home in Idaho, in both rural and urban areas, have increased by 65% in the last five years. Rates for 2022 are unavailable. If the assessment rate in 2022 is the same as 2021, then the property tax for Idaho home values will have almost doubled since 2017.

Idaho property tax relief can no longer adjust for market changes, unlike neighboring Utah. Utah exempts a lower percentage of the home value from property taxes at 45% versus Idaho’s 50%, but does not cap the exemption. Though even Utah’s property tax program is not without is flaws in implementation, with recent attention paid to unfair reassessment practices at the local level.

Very few states have programs that mitigate for market value changes. Only 18 states have caps to the growth in assessed value. These laws mostly follow the 1978 passing of California’s Proposition 13, which limits assessed value growth by 3%. Colorado recently repealed its cap in 2021. Utah is the only state that has an exemption based on market value that is uncapped. Other states such as Louisiana and Minnesota have some relief built into their systems but can’t fluctuate with high market values.

However, caps to assessed value growth were common with some of the highest property tax rates per capita. Washington, D.C. is ranked 1st, Connecticut 3rd, New York 5th, Texas 12th, and California 13th for per capita tax rates.

Utah is ranked 36th and Idaho is ranked 41st per capita. These numbers were based on tax-rates in 2019, which excludes the run-up in real estate values in Idaho. In the last five years, Idaho was almost double the national average increase of home values at 16%.

Idaho residents need a relief option accounting for housing market changes. Leaving assessable values untethered from market price changes allows local government spending to increase too rapidly.

Obviously, Idaho’s local governments have excessive access to property tax funds when forgone amounts in 2022 reached $145 million dollars. These are dollars the local governments chose not to tax but had the opportunity to tax within Idaho code. Local governments can have these funds made available to them at later dates.

As Idaho’s property tax system remains dependent to market value shifts, it can potentially change this low tax state into a higher tax region. A fair property tax program protects against market run-ups and encourages fiscally conservative practices at the local government level.

(Photo Credit: Photo by Tierra Mallorca on Unsplash)

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