Property Tax Issues for Construction Work In Progress: Minimizing Property Tax on CWIP

Description

A critical consideration for developers of real property is the property tax treatment of partially-completed properties. Projects with construction activity are able to report construction-work-in-progress costs (CWIP) on the project balance sheet to capitalize those costs. However, various states take different approaches as to valuation of CWIP on active projects for ad valorem property tax purposes, which provides a significant challenge for property developers and their tax advisers.

There is a lack of uniformity among taxing jurisdictions as to how partially-built properties must valued by the tax assessor on the assessment dates. While most states apply a fair market value standard, other jurisdictions specify a market value-in-use standard on the date of the assessment; still others authorize local assessors to assign a taxable value to properties under construction but do not provide authoritative guidance to the assessors on how to perform the valuation.

Developers and their tax advisers should be aware of capitalization strategies, and whether capitalized costs are included in the tax basis for property tax assessment purposes. Additionally, developers should be abreast of the jurisdiction's approach to separately assessing CWIP, and should review their work-in-progress costs prior to reporting to avoid unfavorable property tax treatment.

Listen as our experienced panel of expert property tax professionals provides a thorough and practical guide to states' approaches to property tax assessments of developments in progress.