How to Factor Property Tax Reassessment Into Your Rental Analysis

You found a rental property with great cash flow on paper. The listing shows $3,200 in annual property taxes on a $285,000 purchase. You run the numbers, and it works. Then you close, and six months later you get a tax bill for $4,800. Your cash-on-cash return just dropped by nearly two percentage points.

This happens constantly. The property taxes shown on listings reflect what the current owner pays, not what you'll pay after the county reassesses the property at your purchase price (see [how reassessment works](https://boe.ca.gov/proptaxes/faqs/changeinownership.htm) in detail).

What Property Tax Reassessment Actually Means

Property tax reassessment is when your local tax authority recalculates the assessed value of a property. This directly affects how much you owe in property taxes.

Most jurisdictions calculate property taxes using this formula:

> Annual Property Tax = Assessed Value × Mill Rate (Tax Rate)

The assessed value can be the full market value, or a percentage of it, depending on your state. The mill rate (expressed as dollars per $1,000 of assessed value) varies by county and municipality.

Reassessment typically happens in two scenarios:

California is the notable exception. Proposition 13 caps annual assessment increases at 2%, so properties held for decades can have assessed values far below market value. When these properties sell, the new owner's taxes can triple or quadruple.

Why Listing Taxes Are Almost Always Wrong

Sellers often purchased their property years ago at a lower price. The assessed value reflects that old purchase price (plus any permitted annual increases), not current market value.

Consider a property last sold in 2015 for $165,000. The current assessed value might be $180,000 after small annual adjustments. If you buy it for $285,000, the assessed value will jump to $285,000 (or close to it) after reassessment.

If the mill rate is 1.5%, the tax calculation changes dramatically:

That's a $1,575 annual increase, or $131 per month of additional expenses that wasn't in the listing.

How to Calculate Your Post-Purchase Tax Burden

You need three pieces of information:

Finding the Mill Rate

Look up the property on your county assessor's website. You'll typically find:

You can calculate the effective rate by dividing the annual tax by the assessed value:

> Effective Tax Rate = Annual Tax ÷ Assessed Value

For the example above: $2,700 ÷ $180,000 = 1.5%

Apply this rate to your purchase price to estimate your post-reassessment taxes.

Accounting for Assessment Ratios

Some states assess properties at a percentage of market value rather than full value. Ohio, for example, assesses at 35% of market value. Georgia uses 40%.

If you're buying in one of these states, the formula becomes:

> Assessed Value = Purchase Price × Assessment Ratio > Annual Tax = Assessed Value × Mill Rate

A $200,000 purchase in Ohio with a 35% assessment ratio and 2% mill rate:

Exemptions You Might Lose

The current owner might have exemptions that reduce their tax burden. Common ones include:

If the seller has a homestead exemption and you're buying as an investment property, you won't qualify. Add that back into your calculation.

A property with a $50,000 homestead exemption and 1.5% tax rate means the current owner saves $750 annually. You won't get that break.

A Complete Worked Example

You're analyzing a triplex listed at $340,000. The listing shows:

You look up the property on the county assessor's site and find:

Let's calculate what you'll actually pay.

Step 1: Calculate the base tax rate

The current owner's taxable value is $245,000 - $40,000 = $205,000 Their tax is $205,000 × 0.02 = $4,100 ✓ (matches listing)

Step 2: Calculate your post-purchase taxes

Your assessed value will be $340,000 (purchase price) You won't get the homestead exemption Your tax = $340,000 × 0.02 = $6,800

Step 3: Quantify the impact

The tax increase is $6,800 - $4,100 = $2,700 per year, or $225 per month.

Step 4: Recalculate your returns

Original NOI estimate: $43,200 rent - $4,100 taxes - $8,640 other expenses = $30,460 Corrected NOI: $43,200 - $6,800 - $8,640 = $27,760

That's an 8.9% reduction in NOI. If you were projecting a 7.5% cap rate, the corrected cap rate is closer to 6.9%.

States Where Reassessment Hits Hardest

Reassessment affects you more in states where:

Some states with aggressive reassessment upon sale:

In contrast, some states limit how much assessed value can increase, even upon sale. Indiana caps annual increases at 2% for rental property. Pennsylvania varies by county, with some rarely reassessing.

I've seen deals in California where the property had been in the same family for 30 years. The listing showed $2,400 in annual taxes on a $450,000 property. After the sale, the new owner paid $5,600. That $3,200 annual increase was the difference between a decent investment and a mediocre one.

When to Adjust Your Offer Price

If the reassessment significantly impacts your returns, you have a few options:

For a 10-year hold with a $2,700 annual tax increase (using a 7% discount rate), the present value of that increase is roughly $19,000. You could argue for a price reduction of that amount.

Most sellers won't accept this logic. They see the listing price as the market value. But knowing your real numbers helps you avoid overpaying.

Timing of Reassessment

The timing varies by jurisdiction, but here's what typically happens:

In most places, you'll pay the old rate for part of the first year. The full impact hits in year two. Don't let a lower first-year tax bill fool you into thinking you avoided reassessment.

Some counties are faster than others. I've seen reassessment notices arrive within 60 days of closing, while others took over a year.

How to Research Before Making an Offer

Before you submit an offer, gather this information:

Spend 20 minutes on this research before making an offer. It's the most overlooked step in rental property analysis.

Common Mistakes

Mistake 1: Trusting the Listing Agent's Tax Estimate

Listing agents often include "estimated taxes" that are just the current owner's taxes. Some will project future taxes, but their estimate may not account for the full reassessment.

I analyzed a fourplex where the listing agent's pro forma showed $5,200 in annual taxes. The actual post-purchase taxes came out to $7,800. The agent used the current assessed value and added 10%. The reassessment added 50%.

Mistake 2: Using Zillow or Redfin Tax Estimates

These sites pull historical tax data. They show what the current owner pays, not what you'll pay. Zillow's "Zestimate" for taxes is particularly misleading because it often just displays last year's tax bill.

Mistake 3: Forgetting About Special Assessments

Some tax bills include special assessments for specific improvements (sewers, roads, schools). These may or may not change upon sale. Check whether the tax bill has line items beyond the standard property tax.

Mistake 4: Assuming No Reassessment Because the Market Is Flat

Even if property values in the area haven't increased, your assessed value will still jump to match your purchase price. The reassessment reflects the transaction, not general market movement.

Incorporating Tax Reassessment Into Your Analysis

When analyzing any rental property:

The [Single Family Calculator](/tools/single-family) automatically accounts for property tax inputs, so you can easily model different scenarios. Enter your estimated post-reassessment taxes in the annual property taxes field to get accurate cash flow projections.

Running Your Own Numbers

Property tax reassessment is one of the most common ways investors overestimate returns on a new acquisition. The fix is simple: spend 20 minutes researching what you'll actually pay, not what the current owner pays.

Your purchase price times the local tax rate gives you a baseline. Add back any exemptions you won't receive. Build in a buffer for future increases. Run your analysis with these real numbers, and you'll avoid the unpleasant surprise of a tax bill that wrecks your cash flow.

The deals that look great with incorrect taxes sometimes look mediocre with correct ones. Better to know that before you wire the earnest money.