ArcaMax

Dear Monty: If a 300-foot lakefront property is divided into two parcels -- a 200-foot lot with a year-round home and a 100-foot lot with a rustic 12-by-24 cabin with its well/septic -- will overall property taxes increase? We figure it will be easier to divide the properties now when our parents are living in the home. We fear that the rustic cabin used a dozen weekends a year gets way overassessed as a lakefront home.

Monty's Answer: Your question is complex, as several factors can influence the outcome. Here's an analysis of the situation:

Potential tax implications:

No. 1: Reassessment: Dividing the property will likely trigger a reassessment by the local tax authority. While it may increase the overall property value, it may not.

No. 2: Separate valuations: When the property is divided, each parcel will be valued independently. The 200-foot lot with the year-round home may maintain a similar value, but the 100-foot lot with the cabin may or may not significantly change its assessed value.

No. 3: Lakefront premium: Waterfront properties often command higher values. By creating two separate lakefront parcels, both lots may be fully valued as lakefront properties, potentially increasing the overall assessed value.

No. 4: Development potential: The 100-foot lot, now separate, may be viewed as having development potential for a larger home, which could increase its assessed value beyond its current use as a rustic cabin.

No. 5: Local zoning and regulations: Some areas require new parcels to have minimum lot sizes. Ensure that both resulting lots meet local zoning regulations.

Mitigating factors:

No. 1: Current use valuation: Some jurisdictions offer property tax relief for properties used in specific ways, such as seasonal or recreational use. The cabin lot might qualify, potentially lowering its tax burden.

No. 2: Homestead exemptions: The year-round home may already benefit. These would likely continue for that parcel.

No. 3: Discuss with your children: Your children may have different ideas about keeping it in the family.

No. 4: Appeal process: If the reassessment results in a significantly higher valuation, there's an appeal process to challenge the assessment, in which is difficult to prevail.

Recommendations:

No. 1: Consult local experts: Before dividing the property, consult with the local tax assessor's office in writing. Also, speak with a land surveyor who is active in the neighborhood. They can provide insight into how the division might affect property taxes and the additional costs of a subdivision.

No. 2: Seek legal advice: An attorney familiar with estate planning can help structure the division tax-efficiently. That attorney should also be familiar with real estate.

No. 3: Consider alternative arrangements: If the primary goal is keeping the cabin in the family, explore other options, such as creating a family trust or LLC to own the property without physically dividing it. Another option is to do nothing. Your "easier to divide now" assumption may be inaccurate.

No. 4: Consider the timing: The timing of the division could affect tax implications. Consider whether dividing the property now or as part of estate planning is more advantageous.

No. 5: Plan for the long term: When deciding, factor in either parcel's potential future development or sale. Does a future development plan exist in the municipality?

When dividing the property may simplify inheritance, it may or may not lead to a higher tax burden. While tax implications are important, they shouldn't be the sole factor in your decision-making.

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter (X) @dearmonty or DearMonty.com.

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