Governor Nicki Haley recently signed a new tax law which lowers the costs of owning a second home or commercial property in South Carolina. The new law limits and in some cases eliminates rapid tax increases at the “point of sale” in South Carolina. The new law applies to commercial property and non-owner occupied homes. It does NOT apply to agricultural property or owner-occupied homes. Those properties will continue to be assessed and taxed under the old “ATI” rules.
The change in the tax law is designed to prevent large variances in the tax assessment of similarly situated properties. Under current law, property is re-assessed every five years. Provided no change in ownership has occurred, the maximum increase in assessed value is 15%. However, if the value of the property has increased substantially and a change in ownership has occurred the new assessment is the market price of the property, i.e. what is sold for or the “point of sale” value. In the early part of this decade when real estate was appreciating at a remarkable rate a home’s tax assessment could increase 50% or more in just a few years. In contrast, the home next door which did not change hands would be subject to the maximum 15% increase. Many believe this led to a decrease in the percentage of second homes owned in the State of South Carolina.
To counter this the South Carolina Legislature passed and Governor Nicki signed South Carolina Code Section 12-37-3135. This new law applies only to commercial properties and non-owner occupied resident property. Both must undergo a sale or transfer of ownership after the 2010 tax year to avail themselves of the benefits of the new law. Under the new law owners of either commercial property or non-owner occupied residential property may elect to have the assessed value of their property reduced by 25% on the day of sale. If after the 25% discount the assessed value of the property is lower than the property tax value prior to the sale or transfer, the prior tax value will remain. However, if after the 25% discount the value is still higher than the prior tax value, the 25% disounted value will be used for tax assessment purposes.
How about an example:
Gamecock owns a home in Palmetto Dunes with a current tax value of $500,000. Beaufort County has recently re-assessed the property using the maximum 15% increase cap which results in a new tax assessed value of $575,000. Gamecock decides he wants a home in Long Cove and sells his home to Buckeye, who intends to use it as a vacation home until he retires to Hilton Head in five years. Buckeye pays Gamecock $1,000,000 for the home. (Yes, it’s a really nice place!) Under the old law the new assessed value of Buckeye’s home would be the price paid at the point of sale, $1,000,000. However, given a 25% discount under the new law Buckeye’s assessed value falls to $750,000. Since $750,000 is still higher than the prior assessed value of $575,000 Buckeye shall be assessed at the $750,000 value.
As always, if you have questions about tax law, please consult a tax lawyer. If you have question about real estate in the Hilton Head area, contact Coastal Living Real Estate!