Los Alamos property owners by now will have received their 2023 Notices of Valuation (NOV) from the Office of the Los Alamos County Assessor. Most will see relatively little change in their taxable value from last year, but for some there may be a big surprise.
Imagine yourself in a home you recently purchased. You settle in and maybe even do some fix-up to make it “your own.” Now fast forward to April 1st of the following year when you receive your NOV which now reflects an estimated increase in taxable value of 50%, 60%, 70% or more. HOW CAN THIS HAPPEN?! Well, you just got hit by the unintended consequences of a well-intentioned state law. The consequence is called “tax lightning.”
Years ago, as more people moved into New Mexico, many older residential neighborhoods were becoming gentrified, which caused property values to increase. Lower income property owners, some of whom owned property that had been in their family for generations, were being taxed out of their homes. To remedy this situation, the state legislature passed a law limiting yearly residential assessment increases to 3%, regardless of changes in the property’s actual market value.
The law capping annual assessment increases has several exclusions, among them are increases in the market value of the home due to improvements and additions. (Non-residential property, such as commercial or vacant land regardless of zoning, is also excluded from the cap). The exclusion that hits home purchasers the hardest, however, is home ownership transfers. With certain limited exceptions, when ownership of a home transfers to a new owner the assessment is set to the market value as determined by the Assessor’s Office on January 1 of the following year. This should not be a surprise because realtors are required to provide the buyer the Assessor’s estimate of the taxes on the home before the sale, but some people may miss it in the flurry of paperwork involved in closing a sale. Hence the term, “tax lightning.” Let’s put some numbers to this.
Starting in 2007, the market value of Los Alamos homes fell. Although assessment increases are capped by the statute, assessment decreases have no limit. In late 2015, the housing market turned upward, and sales prices have increased every year at current double-digit rates. As a result, approximately 90% of residential assessments in Los Alamos are capped. Those homeowners do not see a dramatic increase in their property assessment. Tax lightning only affects the purchaser of residential property.
The following graph illustrates the impact of tax lightning. Looking at median residential sale prices and median residential assessment values on January 1 of each year from 2008 through 2022, the graph shows the disparity between the two values. The widening gap is the effect of the cap – in most years our uncapped assessments are within a few percent of the market.
From 2008 through 2022, the disparity between median sales price versus median assessment value ranged from 6.8% to 34%. What does this mean in real dollars to the taxpayer who purchased a home? Let’s say for example, you purchased a home in 2022 at the median sales price of $486,500. Your estimated tax bill at closing would have been based on the list price of the home, presumably close to the purchase price. The estimated taxes would have been approximately $3892, compared with the previous owner’s current taxes which could have been set say in 2015 when the median value was $240,000: with the 3% cap he probably paid around $2292 in 2022. This is the “tax lightning” effect – which could be quite a shock if you paid no attention to the estimated tax document you got in the paper flurry at closing.
In addition, in a fast-rising market like 2022 the market value could have increased even more during the year.
This column was plagiarized and updated from columns published previously by my predecessor Ken Milder, to whom I am indebted for leaving the Assessor post in outstanding condition. I hope this helps you understand this peculiarity of our property tax system. I’m available to discuss this with you; and the experts in our office – 1000 Central suite 210 – can provide you with valuation data on your property. Visit the Assessor's webpages or email us at [email protected] or call 505 662-8030 to make an appointment with me or an appraiser.