Limited Market Value
March 2003
The taxable market value of a property is the final value established after applicable tax provisions that provide either limitations or reductions have been applied to the assessor’s estimated market value. One particular limitation that was created by state policymakers is the limited market value application. It is a statutory limit imposed on how much an assessor’s estimate of market value is permitted to increase from one year to the next. Under this law, the assessor is required to value all property at its market value, but a limited market value, if applicable, is to be used for the purpose of determining the property tax bill.
Are all property types eligible for the limit to increases in market value?
No, the limit to increases in the assessor’s estimated market value only applies to certain properties. They are identified by their property tax classification as agricultural and residential homestead or non-homestead properties, non-commercial seasonal recreational properties, and timberland. This limitation does not apply to properties classified as commercial and industrial, seasonal recreational residential commercial, public utilities, apartments, student housing, manufactured home parks, and non-profit community service oriented organizations.
If a property’s tax classification should change, will the property lose its limited market value eligibility?
The limited market value treatment continues to apply if a property changes from one eligible tax classification to another eligible tax classification. For instance, if the property tax classification changes from agricultural homestead to residential homestead, then the limit remains in effect. If a property changes from an eligible tax classification to an ineligible tax classification, then the limit expires in the payable year immediately following the assessment year when the change was made. An example of this conversion would be when a residential non-homestead property is reclassified as student housing. Conversely, if a property changes from an ineligible tax classification to an eligible tax classification, it would qualify for the limit in the payable year immediately following the assessment year when the change was made. Proof of this change would be when a commercial property is reclassified as a residential homestead.
What is the amount of the limit applied to annual market value increases for qualifying properties?
Over the last twenty years, legislatures and governors have repealed, reintroduced, and amended the application and use of limited market value for qualifying properties. For taxes payable in 2003, the increase in taxable market value shall not exceed the greater of 10% of the taxable market value in the preceding assessment, or 15% of the difference between the previous year’s taxable market value and the current year’s estimated market value, whichever is greater. For taxes payable in 2004, the amount of taxable value increase is limited to 12% or 20% of the total amount of increase from the previous year’s taxable market value, whichever is greater. In subsequent years, similar step-like increases to these limit amounts will be applied so that all property is assessed and taxed on its full estimated market value beginning with taxes payable in 2008.
How is the limited market value application applied to an eligible property?
The following illustration demonstrates how the limited market value application is applied to an eligible property:
2001 Assessment: Total Taxable Market Value = $125,000 *
2002 Assessment: Total Estimated Market Value = $145,600**
Percent Change Between Total Taxable Market Value and Total Estimated Market Value = 16.48%
* The total taxable market value in this example was the same as the property’s total estimated market value because it had not been previously reduced by a value limitation, deferment, or exclusion.
** The value increase was attributable to the general market activity in the area. It was not related to new improvements made at the property.
Given the increase in total estimated market value and the applicable limited market value provisions, the amount of market value increase for taxes payable in 2003 is limited to 10% or 15% of the total amount of increase from the previous year’s taxable market value, whichever is greater.
- $125,000 x .10 = $12,500 (taxable market value increment)
- $145,600 - $125,000 = $20,600 (increase in market value)
$20,600 x .15 = $3,090 or $3,100, rounded (taxable market value increment) - The taxable market value increment of $12,500 under one application is greater than the $3,100 taxable market value increment under the other application; thus, the $12,500 taxable market value increment is used in determining the limited market value for the property.
- $125,000 + $12,500 = $137,500 (limited market value for taxes payable in 2003)
- $137,500 is also referred to as the taxable market value for payable 2003. This value is used to determine the tax bill rather than the estimated market value of $145,600.
2002 Assessment: Total Estimated Market Value = $145,600
Total Taxable Market Value (Limited Market Value) = $137,500*
2003 Assessment: Total Estimated Market Value = $170,400**
Percent Change Between Total Taxable Market Value and Total Estimated Market Value = 23.93%
* The total taxable market value in this example is different than the property’s total estimated market value because it had been previously reduced by an imposed limit.
** The value increase was attributable to the general market activity in the area. It was not related to new improvements made at the property.
Given the increase in total estimated market value and the applicable limited market value provisions, the amount of market value increase for taxes payable in 2004 is limited to 12% or 20% of the total amount of increase from the previous year’s taxable market value, whichever is greater.
- $137,500 x .12 = $16,500 (taxable market value increment)
- $170,400 - $137,500 = $32,900 (increase in value between the taxable market value and the current estimated market value)
$32,900 x .20 = $6,580 or $6,600, rounded (taxable market value increment) - The taxable market value increment of $32,900 under one application is greater than the $6,600 taxable market value increment under the other application; thus, the $32,900 taxable market value increment is used in determining the limited market value for the property.
- $137,500 + $16,500 = $154,000 (limited market value for taxes payable in 2004)
- $154,000 is also referred to as the taxable market value for payable 2004. This value is used to determine the tax bill rather than the estimated market value of $170,400.
Does the limit apply to new construction or physical improvements made to a qualifying property?
The application of limited market value does not apply to any value increases resulting from either new construction or physical improvements which were made to a qualifying property after the preceding assessment and included in the current assessment. This value is only excluded from the limited market value calculation in the year in which the new construction or improvements become taxable. For ensuing years, this value is included into the total estimated market value used in determining the limit for the property.
Does the limited market value law apply to newly platted land?
No, the plat deferral law addressing the phase-in of the assessor’s initial market value takes precedence over the law imposing a limit on increases to the estimated market value. This original estimate of market value is phased-in over a seven-year period, but if the assessor increases the market value of the platted parcel in any of the six years following the first year when the market value was established that increase is subject to the application of limited market.
Are agricultural properties qualifying for Green Acres eligible for limited market value?
Yes, if a property is enrolled in the Green Acres program, it is also subject to the same treatment under the limited market value. The assessor will determine two limited market values for the property---one limited market value for the value established according to its farm use and the other limited market value based upon the estimated market value that reflects non-agricultural influences.
Are homes that receive a value exclusion through the program, “This Old House” eligible for limited market value?
Yes, if a home has value excluded from the property tax, it is still eligible for the limit to increases in market value. The assessor will use the total market value of the property in determining its limited market value except in the first year in which the estimated market value has been established for the amount of the new improvement(s).