Taxes and TIC
Property taxes are allocated among TIC co-owners based on the total amount each owner paid for their interest in the property. Keep in mind that a TIC is not legally defined as multiple separate properties, it is one property collectivelly owned. As such the entire property will receive one property tax assessment for which each TIC share owner shares equal responsibility.
Often TIC owners will estimate their annual property tax payment. Each owner will then pre-pay their share of the payment into a shared TIC bank account on a monthly basis, thereby accruing the tax payment over 12 months and ensuring that the cash will be available at the time payment is due.
Property taxes increase in two ways:
- The property tax rate is increased
- The assessed value of the property changes.
When tax rates are increased, the TIC owners simply apply the new rate to their assessed property value and the calculate each owners proportional share of the payment.
When the assessed value changes, the calculation is more complex as it will then matter what, or who, caused the assessment to change. A resale of a share of the TIC can result in a reassessment of property value. In these cases, the general rule is to apply any tax increase to the owner who caused the new assessment. For example, if one TIC owner sells his/her share, the property will be reassessed. Whatever increase in property tax results would be assigned completely to the buyer of the shares as it was their “buy” activity that caused the reassessment.
Conversely, owners who aren’t selling their shares should not have to pay increased property taxes because another owner chose to sell their TIC share. Another activity that may cause a property tax reassessment would be a significant home improvement, such as an addition. In these cases, the increase in property tax should be allocated to the owners responsible for the home improvement (and thus the reassessment).
If the home improvement benefits all owners equally, then the tax should be allocated equally. If the improvement only benefits one owner, then that owner should be allocated the entire resulting increase in property tax.