Washington State is among the most sought-after states to live in in the nation, offering residents an attractive cost of living; gorgeous natural scenery; beautiful weather; and warm, genuine people. In fact, Washington ranked fifth for states adding the most new residents in 2016—proof that there’s something special about the Evergreen State.
If you’re considering building a new home in Washington, it’s important to familiarize yourself with some of the state’s tax rules that may apply to your property. Washington’s property tax code is regarded as one of the most complex in the nation, but understanding the basics will help position you for success.
Here, we count down the top four tax implications that may be relevant to your homebuilding project:
Washington’s property taxes are determined by a budget-based system.
In Washington, property tax rates vary from county to county. Your annual property taxes will depend upon the state’s budget-based system. Each year, your tax jurisdiction will set the amount of property needed to fund its budget. Called the “levy,” this is the total amount that the jurisdiction will collect from its residents.
The specific amount you will owe depends upon the annual levy rate and the assessed value of your property. In general, the higher the value of your home and the land it is on, the higher your tax rate.
The value of your property depends on several factors.
According to the Washington State Department of Revenue, state assessors appraise “real property,” which includes land, improvement to land, structures, and some equipment affixed to structures, to determine its value. Your property’s overall value will depend upon several factors, including its location, zoning, view, and geographic features. Even the condition of surrounding properties can impact the value of your property.
Your county will reevaluate the value of your property every six years. If the assessed value of your property has increased, the county will notify you. While a higher assessed value typically corresponds to a higher tax bill, that’s not always the case. If you disagree with a new assessed value, you can challenge the assessment by submitting a letter to your local assessor’s office.
You may be eligible for exemptions, deferrals, or assistance.
Your land may qualify for certain tax exemptions or deferrals, and you may be able to benefit from tax assistance. Qualifying factors include:
- If your property includes timber land or designated forest land
- If you are a senior citizen or disabled person
- If you have a limited income
- If you are the widow or widower of a veteran
For details and to determine your eligibility, visit the Department of Revenue website.
Parts of your mortgage payment are tax-deductible.
Of course, it’s important to budget for your annual tax bill as you consider how much land to buy and where, what size house to build, and other factors. As you make these key decisions, remember that certain segments of your mortgage payment are actually tax-deductible in most cases. These include:
- Interest on debt used to buy, build, or improve your home (on mortgages totaling less than $1 million)
- Property taxes (if you itemize your deductions)
- Mortgage insurance (as long as your adjusted gross income is less than $100,000 for a married couple)
These important deductions can help you save significant amounts of money, which may impact your overall budget for your property and custom home.