Important Changes to Vacant Land Real Estate Tax Valuations

Due to a recent law change, owners of vacant land in Nebraska may need to file an election with the county assessor by December 31^st in order to avoid an increase in property taxes due to a change in valuation methods.  To qualify for the election, the parcels must be:

• Two or more vacant or unimproved lots,
• In the same subdivision,
• In the same tax district,
• Owned by the same taxpayer (individuals & businesses both qualify), and
• Held for sale or resale (they do not have to be actively listed)

The election must be made annually by December 31^st by filing Form 191 with the county assessor’s office.  Below is a more detailed analysis of the law change.

Historically, some county assessors (including Douglas, Sarpy, and Lancaster) have applied the income approach method of valuing vacant land held for sale.  This method provides for the use of a discounted cash-flow analysis, and values land at its net present value, which accounts for the length of time it may take to sell the property. Other counties in Nebraska apply a market approach method which estimates the fair market value of the land, typically resulting in higher valuations, and therefore, higher real estate taxes.

A recent controversy in Lancaster County highlighted that the income approach method for valuing vacant land was not permissible without statutory authority giving individual counties the right to value vacant land held for sale differently. In response, the Nebraska Legislature enacted LB 191 which, effective July 2014, amended the statutory definition of a real estate parcel, and granted county assessors the authority to use the income approach method in valuing vacant land held for resale.

LB 191 requires taxpayers who own two or more vacant lots held for sale in the same subdivision in the same tax district to file an election to have their lots treated as one parcel for valuation purposes.  If the election is filed, the county assessor will then combine the parcels (for valuation purposes only) and use the income approach method to value the lots.  For counties who’ve historically used this method (including Douglas, Sarpy, and Lancaster), valuations of vacant lots should remain very similar to prior years.  However, taxpayers who fail to file the election (including those who don’t qualify) will most likely see an increase in the valuation of their vacant lot(s) as the county assessor will be required to use the market approach method instead of the income approach method.

To make the election, property owners must file Nebraska Department of Revenue Form 191, Vacant or Unimproved Lots Application, by December 31, 2014 for the 2015 tax year.  This form will need to be filed annually with the appropriate county assessor’s office.

If you have questions regarding this issue, please don’t hesitate to contact us at 402.496.8800 or your local county assessor’s office.