In certain situations, homeowners in Alabama can receive property tax assessments that are twice the rate that other homeowners are paying. These instances occur when a person is renting a residence while their home undergoes major renovations or when a person owns a second home—including a home inherited from a deceased relative or a home still on the market after the homeowner has purchased and moved into another home.

This article addresses what homeowners in Alabama can do if their homes are assessed at the higher tax rate.

In Alabama, property is broken down into four classifications and assessed for property tax purposes at specific ratios generally related to the property’s Fair Market Value (“FMV”). These four classifications are outlined in the Alabama Code as follows:

Click here to view table.

The Alabama Code defines Residential Property as “real property, used by the owner thereof exclusively as the owner’s single-family dwelling.” If a taxpayer’s residence qualifies as Residential Property under the Class III designation, the tax ratio used is 10 percent of the FMV. However, if a residence does not qualify as Residential Property, the home then falls under the Class II designation and is taxed at a ratio of 20 percent of the FMV, which results in a tax bill that is twice the rate of Class III-designated property.

Although a second home or a home being renovated would seem to easily qualify as Class III Residential Property, it is not uncommon for the applicable taxing authority to assess these properties as Class II properties and tax them at the higher rate. It is up to the homeowner to determine the property classification. If the taxing authority designates such property as Class II and taxes it at the higher rate, the homeowner will need to apply for the home to be reassessed as Class III property and will need to show that it qualifies as Residential Property. In order for the property to qualify as Residential Property, the homeowner must demonstrate as many of the following as possible:

  1. As of October 1st of the tax year, the homeowner was paying for all utilities at the property;
  2. The homeowner or an immediate family member was the only person occupying the property as a single-family residence and the property was not used as income-producing property;
  3. As of October 1st of the tax year, the homeowner maintained the property, such as caring for the lawn and making repairs at the property;
  4. The homeowner resided or stayed overnight at the property; and
  5. A homestead exemption was filed for the property.

When a taxpayer owns a second home (whether by inheriting the property or by purchasing the property without first selling an existing home) or when a taxpayer has moved out of his or her home for a long period of time while it undergoes renovations, it is not uncommon for these properties to be designated Class III properties, which results in the homeowner paying twice as much in property taxes. In these situations, the taxpayer will need to be aware of how their property has been assessed and, if it is assessed at the higher rate, provide evidence that it qualifies as Residential Property and take action to have the property reassessed at the lower rate.