"This Old House" Property Tax Exclusion Program to Expire
September 2002
Almost ten years ago, a law was enacted in Minnesota to provide a property tax exclusion for some homeowners who made qualifying improvements to their older homes. This relief that is available through a program commonly identified as “This Old House” will end on January 2, 2003, the annual assessment date, pursuant to its statutory deadline. Homeowners who request to participate in this program are reminded that only qualifying improvements made in the year 2002 or before are eligible for this exclusion. Any improvement completed after this time is ineligible. If an improvement is partially complete on this date, only the value attributable to the phases of construction that have been satisfied will be eligible for the exclusion.
What is this property tax program known as “This Old House”?
This program is designed to give owners of deteriorated and older homes an incentive to restore and renovate their houses. It permits the assessor to grant a temporary property tax exclusion on all or a portion of the value estimate rendered for certain newly constructed improvements (i.e. the total qualifying value is dependent upon the age of the home). To qualify for “This Old House”, the property must be 45 years of age or older and must be valued less than $400,000 at the time the improvement begins. The property must also have an increase in estimated market value due to the improvement of at least $5,000, and the property must be receiving the homestead or will be receiving the homestead tax classification by December 1st of the year the improvement begun. Additionally, the homeowner must have taken out a building permit in taxing districts that require it and/or file an application for the value exclusion with the assessor. The application has to be submitted prior to July 1st of any year to be effective for taxes payable in the following year and within three years of the date the building permit was obtained or the date the improvement begun. Once it is received and approved by the assessor, the exclusion applies to the property for ten years or until such time it is sold, transferred, or loses its homestead status, whichever comes first.
What types of improvements qualify for this exclusion?
Only improvements made to the residence and garage, or the construction of a new garage qualify for the exclusion. The nature and type of improvements include: additions to the existing house and garage, expansion of the existing house and garage, and restoring, remodeling, or upgrading of the existing house. The addition of a porch or deck to the property would also qualify.
What types of improvements do not qualify for this exclusion?
Improvements made to the site surrounding the home do not qualify for the exclusion. These improvements include but are not limited to the ensuing features: landscaping, fences, driveways, lawn sprinkler systems, wells, sewer systems, swimming pools, and tennis courts.
Since the minimum value for qualifying improvements is $5,000, does this mean that every qualifying improvement must reach this threshold?
No, the qualifying value may come from multiple improvements. In other words, the aggregate total resulting from all improvements completed in the same calendar year is eligible for the value exclusion.
How is a partially completed improvement treated if the $5,000 threshold is not reached in the year the project was started?
The improvement is assessed at a percentage of completion. This value is added to the assessment for that year. In the next year, if the improvement has a higher percentage of completion or is complete, the total value of the improvement, if it is $5,000 or more, is now eligible for the exclusion. The ten-year period begins when the project reaches this threshold.
However, if the project is only partially complete on January 2, 2003, only the qualifying value of the improvement completed by this date will be eligible for the exclusion. Any additional value resulting from the future completion of the improvement is no longer eligible for the exclusion due to the expiration of the program.
How is the qualifying value of the exclusion determined?
The value of any qualifying improvement is estimated by the assessor and relates to the additional market value added to the property, not the actual cost of the improvement. The qualifying value of houses that are at least 45 years of age but less than 70 years is limited to one-half of the value of the improvement up to a maximum exclusion of $25,000. Houses that are 70 years of age or older are eligible to have the total value of any improvements excluded up to a maximum of $50,000.
When the exclusion expires, is it added to the assessment in one lump sum or phased in over time?
If the property is sold, transferred, or loses its homestead status, the value exclusion is added back to the property assessment as one lump sum in the next year. After the ten year period has expired, the amount of value excluded is added back in 50% increments in the two subsequent assessment years if the qualifying value is equal to or less than $10,000; or 20% increments in five subsequent years if the qualifying value is more than $10,000.