One underappreciated data point when forecasting property taxes is the property’s tax history. It can be easy to assume these numbers are irrelevant because they’re in the past. But there is a lot that can be gleaned from them to increase the richness and accuracy of your projection.
During due diligence, most teams focus their energy on where taxes are going: new assessment, new tax rate, new improvements. That’s the right instinct, but it skips a step. Before you can credibly forecast where a tax bill is headed, you need to understand exactly how it got to where it is today. That means rebuilding the total on the tax bill from its component parts – the assessed value, the applicable rate, any exemptions or caps, and every non-ad valorem charge layered on top. This is what we mean by “recreating” tax history, and it’s one of the highest-leverage exercises in tax due diligence research.
Here’s why it matters, and how we approach it in our Taxonics FORECAST reports.
Jurisdiction Insights
Every taxing jurisdiction has its own logic for how, why, and when a property gets assessed and taxed, which heavily relies on your specific deal. A ground-up development, a value-add acquisition, and a stabilized core purchase can all trigger different assessment treatment in the same county, even on the same parcel.
Before you can trust a projection, you need to understand:
- Does a sale trigger reassessment, or does the jurisdiction only reassess on a cyclical schedule?
- Is there a distinction between how the jurisdiction treats land versus improvements? Or different types of uses?
- Are there statutory notice periods, appeal windows, or informal “look-back” practices that affect timing?
- Does new construction get picked up mid-year, at a development milestone, or at the next assessment date?
Tax Rate Analysis
Once you understand the mechanics, the next step is analyzing the subject’s actual tax rates alongside jurisdiction-specific budget and policy considerations, to land on a defensible growth rate for the projection period.
A single “tax rate” is almost never a single number. It’s typically an aggregation of several components such as county, city, school district, special district, etc., each with its own funding pressures, statutory limits, and political dynamics. Some of these components move every year like clockwork; others are essentially frozen by statute; others move only when a bond referendum passes or a budget shortfall forces a vote.
You cannot responsibly apply a flat “3% escalation” holistically without first breaking the rate down and understanding which pieces are actually capable of movement.
Recreated Tax History
This is the core of the exercise: we derive each historical tax bill from its underlying inputs of value, rates, non-ad valorem charges, and adjustments. If we can rebuild last year’s bill (and the year before, and the year before that), we’ve proven that our methodology is sound before we ever apply it forward. If the recreated number doesn’t match the actual bill, that’s a signal — either we’re missing an input, or the property has an irregularity that needs to be understood before it gets baked into a ten-year projection.
In practice, this involves a handful of specific tactics:
Compare market value vs. assessed value vs. taxable value. These three numbers can, and often do, diverge. Sometimes by design, sometimes as an artifact of a cap or credit. When we line them up year over year, a few questions naturally surface:
- Is there a year that stands out from the trend? A spike or a drop is rarely random – it usually points to a reassessment event, a completed permit, an appeal, or a change in classification.
- Did the assessment ratio change, and do we know why? If the taxable value is a smaller percentage of market value than it used to be, was that driven by an agricultural exemption, a homestead-style credit, or some other program-specific benefit, and, critically, will that benefit survive the transaction? Exemptions and preferential classifications are frequently tied to use or ownership, and a sale can strip them away immediately.
- Are we looking at a jurisdiction with a value-limiting mechanism, like Florida’s nonresidential cap, Nevada’s cap on taxes, or Maryland’s assessment phase-in? These mechanisms mean the taxable value can lag meaningfully behind market value for years, and that gap unwinds on its own schedule that needs to be modeled explicitly, not assumed away.
Look for changes in the tax rate over the past several years. A rate history tells you which components tend to move and by how much, and just as importantly, which components historically don’t move. (Maryland is a good example of a jurisdiction where certain rate components are effectively fixed by statute while others fluctuate annually with the budget cycle.) Understanding this split lets you apply differentiated growth assumptions to each component rather than one blended guess.
Verify square footage. Recreating the tax history is also a useful audit tool for the assessment’s underlying data. If the property has been expanded, renovated, or had a use change that the assessor hasn’t yet picked up, there may be exposure to an escaped assessment. In other words, a retroactive correction that can arrive as an unpleasant surprise well after closing. Catching this during due diligence, rather than after you own the asset, is the entire point.
Isolate non-ad valorem charges. Many jurisdictions layer flat or formula-driven charges onto the tax bill that have nothing to do with assessed value — stormwater fees, lighting district assessments, CDD or MUD bonds, solid waste charges, and so on. These are frequently neighborhood- or district-specific, meaning two otherwise comparable properties a few blocks apart can carry very different non-ad valorem loads. Because these charges don’t follow the same growth logic as ad valorem taxes, they need to be identified individually and projected forward using their own methodology — not swept into a blended tax rate assumption.
Ask jurisdiction policy questions. Recreating history naturally raises forward-looking questions: is there a new school, a new transit line, or a new bond referendum in the pipeline that would affect future levies? Tax history tells you what’s already been decided; it also tells you where to look for what hasn’t been decided yet.
Trends and Anomalies
Pulling this all together, three principles guide how we use recreated tax history in a projection:
- Break the tax rate down to properly project the parts. A single escalation assumption applied to a blended rate will systematically mis-forecast a bill that’s actually made up of components moving at different speeds or not moving at all.
- Watch for property changes that haven’t been picked up in the assessment yet. History shows you the assessor’s baseline; a site visit and permit history show you what’s changed since. The gap between the two is where escaped assessments and unbudgeted step-ups hide.
- Remember that market value, assessed value, and taxable value can diverge while all three remain accurate. These aren’t competing numbers where one is “right” and the others are “wrong.” They’re three different measurements governed by three different sets of rules, and a good projection tracks each one on its own trajectory rather than forcing them into a single line.
The Bottom Line
Property tax history isn’t a backward-looking curiosity. It’s the evidentiary foundation for a forward-looking estimate. Recreating it, line by line, forces you to understand the actual mechanics of how a jurisdiction taxes the subject property, validates that your forecasting methodology is sound before you rely on it, and surfaces the irregularities (expiring exemptions, phase-ins, escaped assessments, district-specific fees) that are most likely to blow up a proforma after closing. In a due diligence process where the tax line item is often one of the largest and least forgiving assumptions in the model, that extra rigor pays for itself many times over.
