The Minnesota appeal deadline for valuation and classification for the 2021 assessment is May 2, 2022. Multifamily property owners could qualify for significant tax reductions based on classification. For taxes payable in 2022, there are 42 classifications with 62 different net tax capacity class rates. It is critical for taxpayers to review classifications when they receive value notices.
The Minnesota property tax system utilizes a classification system to determine a property’s “tax potential,” referred to as tax capacity. The formula uses the property value multiplied by the net tax capacity class rate, which equals net tax capacity. The result is then multiplied by local and state rates, less any credits, to determine the property’s total taxes payable.
Apartments with four or more units are classified as either 4a or 4d. The former classification is for market rate apartments, while the latter is for low-income housing. To qualify as low-income housing, an apartment must receive certification by meeting certain criteria. Being correctly classified is vital, as low-income housing has a lower net tax capacity rate and a first-tier value limit. For the 2021 payable 2022 assessment, the first-tier value limit is $174,000 per unit. Any remaining value more than $174,000 per unit is taxed at a lower rate. The following table shows the net tax capacity rate for 4a and 4d apartments.
First $174,000
More than $174,000
0.75%
0.25%
To further illustrate the importance of classification, the following is an example of the “tax potential” of the different apartment classes for a $200,000 unit.
(Market Rate Apartments)
(Low-Income Apartments)
While both apartments have the same value, the 4d apartment will pay significantly less taxes than the 4a apartment. The above is a prime example of why your classification matters. For the 2022 payable 2023 assessment, the first-tier value decreases significantly to $100,000.
Having the correct classification may result in a significant reduction in tax liability. The Minnesota tax experts at Ryan can assist with valuation and classification to ensure you do not overpay on property taxes. If you would like to learn more about Ryan or if you have any questions, contact one of our local offices today.
TECHNICAL INFORMATION CONTACTS:
Alan Heichman
Principal
Ryan
312.980.1129
alan.heichman@ryan.com
Lane Thor
Senior Manager
Ryan
612.889.6395
lane.thor@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.