Given the real estate market’s strong performance in recent years, especially in desirable neighborhoods, many property owners may face higher valuations. In turn, these increases are likely to result in higher property tax obligations.

What Impacts Property Values?

The reappraisal incorporates multiple data points:

• Market Trends: Properties in areas with significant development or strong demand may see considerable value increases.
• Recent Sales Data: Comparable property sales in your neighborhood play a critical role in determining value.
• Physical Characteristics: Renovations, repairs, or neglected maintenance may all affect valuation.

The Tax Implications of Higher Assessments

While rising property values can indicate a strong market, they can also directly influence tax bills. Property taxes are calculated by multiplying a property’s assessed value (35% of the appraised value in Ohio) by the local tax rate (millage rate). Thus, even a modest value increase can lead to noticeable tax hikes.

However, property owners should remember that millage rates are determined by local levies and government budgets. Higher appraised values do not automatically result in proportional tax increases unless levies change as well.

How to Challenge Your Property Assessment

If you believe your property has been overvalued, you have the right to appeal the valuation. Appeals must be filed with the Cuyahoga County Board of Revision (BOR) between January 1 and March 31, 2025. Steps include:

1. Review Your Valuation: Compare your appraised value with comparable property sales in your area.
2. Gather Evidence: Such as comparable property sales in 2023 and 2024, recent appraisals or broker price opinions, and documentation of defects or deferred maintenance, including dated photos or contractor estimates. Any appraiser must testify in support of their opinion of value.
3. File Your Complaint: Submit the required forms through the BOR portal or in person.
4. Attend Your Hearing: Present your evidence before the BOR, which will decide whether to adjust the valuation.
   1. Your local school board may submit its own evidence of value to challenge your proposed value.
5. File An Appeal: If necessary, you may file an appeal with the Ohio Board of Tax Appeals or the Cuyahoga County Court of Common Pleas within 30 days of the written release of the BOR’s decision.

A well-prepared appeal supported by expert guidance often yields better outcomes, especially when challenging complex or large-scale discrepancies.

Why Early Action Matters

The 2024 reappraisal will establish tax liabilities through 2030, meaning errors in this cycle can have long-lasting financial effects. Property owners are encouraged to:

• Audit their valuations for accuracy.
• Monitor neighborhood trends that could affect market value.
• Consult legal counsel or property tax specialists for preemptive strategies.

Legal Assistance for Property Reappraisal Issues

Navigating the intricacies of property valuation and tax appeals requires a keen understanding of the process and evidence standards. Our firm has extensive experience representing property owners in valuation disputes, from analyzing market data to advocating before the BOR.

If you are concerned about your 2024 reappraisal or its impact on your property taxes, please reach out to request a consultation or call us at 216-696-1422.

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McCarthy Lebit would like to thank Alex Friedman for his effort in assisting with the preparation of this legal blog post for The More Report. At the time of publication, Alex was a JD graduate from the University of Miami and was awaiting results from the Ohio Bar Exam. He is now a licensed Ohio attorney and a member of the firm’s transactional practice groups.

The post Understanding the 2024 Property Reappraisal in Cuyahoga County: Key Details for Property Owners appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

1. You have a designated person to call if and when you need legal help. Imagine that your small business gets a new business opportunity with a publicly traded company – a contract that could mean millions of dollars and transform your business – but the company sent you their “standard” 10-page terms and conditions (single spaced, double sided, 6-point font) and wants a response in 24 hours. Who are you going to call? You could spend days trying to get a referral to a good lawyer, getting in touch with them, running conflict checks, signing engagement letters, depositing a retainer, etc. Even more worrisome, you are asking a lawyer to respond to a potentially business altering contract when they know nothing about your business.
2. You know what and how the lawyer charges. A moment of urgency is not a favorable time to negotiate hourly rates or alternative fee arrangements. Establishing a relationship with a lawyer before you need the help will allow you that time to discuss fee arrangements in advance.
3. You have access to the lawyer’s network. Unique or niche legal matters often require expertise outside the scope of a corporate generalist (e.g., admiralty or maritime law, immigration, environmental law, etc.) and there may only be a handful of lawyers in the city or state with the necessary knowledge and skillset to handle your matter. If you have a relationship with an outside general counsel, you have access to that lawyer and firm’s entire network and benefit from streamlined legal services.
4. You have someone to call in an emergency. I cannot tell you how many times I have been called because a client’s key employee got in legal trouble (e.g., DUI), got in an accident, had a family member get in trouble, had a son/daughter get in trouble at school, etc. Being able to immediately pick up the phone and get help for your key employee not only helps your business stay open and operating but also creates loyalty among employees.
5. You have someone to help you abide by all the “corporate formalities” of operating in a limited liability entity (e.g., LLC, corporation, limited liability partnership, etc.). One of the key benefits of operating a business in an LLC or corporation (or other similar entity) is the limited liability protection – creditors of the business cannot get to your personal assets or the assets of members/shareholders. Sometimes creditors try to “pierce the veil” of liability protection and get to the assets of members/shareholders. While it is a difficult task, one of the key elements of “piercing the veil” is whether the entity abided by all the corporate formalities (e.g., corporate minutes, annual meetings, corporate records, etc.). While these things often seem trivial in small businesses, they can be very important in defending against creditors trying to pierce the veil and assert personal liability for the business debts.
6. So we can help you look forward and plan for the future. Is the business going to need financing or a loan? Are you looking to sell the business or acquire other businesses? What is your succession plan for the business? What happens to the business if you get “hit by the proverbial bus”? Your outside general counsel has been through all these types of transactions in the past – we know what banks and investors expect, we know what private equity buyers expect, we have done succession planning – and can help prepare you for and guide you through these transactions more smoothly and cost effectively.
7. Most importantly, so you get advice from someone that knows you and your business. Business owners are people and lawyers are people too – we all have our own set of expectations and understandings. The middle of an urgent, “bet-the-company” legal matter is not the right time to find out if you and your lawyer have the same set of expectations and understandings. I have been given the same exact instructions from two different clients and yet they wanted very different things. Had I not known the clients ahead of time and understood their individual set of expectations and understandings, I would have had very unhappy clients. Moreover, the best advice you will get from a lawyer comes from a lawyer that not only knows and understands you as a person, but also your business. There are business implications in every legal decision and asking a lawyer to give legal advice in a vacuum (without an understanding of the business and the business owner) will lead to less efficient, more costly, and potentially harmful legal advice.

For more information or to seek counsel from our business & corporate law group, please reach out to request a consultation or call us at 216-696-1422.

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However, there are very specific and complex rules that must be followed in order to qualify for the QOZ tax benefits.

Due to the potential deferral of tax on capital gains and because they are often tied to real estate, QOZ investments may be confused with §1031 Like-Kind Exchanges which allow a taxpayer to sell a piece of investment real property and defer tax on the capital gains if the sale proceeds are timely re-invested in “like-kind” real property. Like QOZs, §1031 transactions are subject to very precise rules. The §1031 tax deferral allows a real estate investor’s investment to grow from one property to the next without the investor immediately paying capital gain tax along the way.  In a §1031 transaction, the investment must be in real estate but can be, and usually is, structured as a very low risk passive investment for the investor-landlord (e.g., via a triple-net lease under which the tenant pays all taxes, maintenance, and insurance on the property, in addition to rent).

Though there are similarities between QOZ deals and §1031 transactions, they are not the same. For example, a QOZ business investment must be an “active” trade or business. A §1031 transaction, on the other hand, can qualify for its intended tax benefits if the investor-landlord swaps one passive triple-net leased property for another. That type of passive real estate investment cannot qualify for QOZ benefits, though, because standard triple net leases, by themselves, do not qualify as an active trade or business. Afterall, the intent behind QOZs is to spur economic development and job growth, not to reward passive portfolio income with additional tax benefits.

Despite potential roadblocks, the tax benefits of QOZ investments have caused many real estate investors to try and fit a typical triple net real estate deal into the QOZ framework. Creative advisors are pushed to find ways to structure the deal to qualify as a QOZ investment that still achieves the investor’s desired economic outcome. The overarching idea to keep in mind is that the investment should be an active trade or business, not just a passive investment, and that the investor should have some risk.

The recently issued IRS regulations have indicated that triple net leases, in and of themselves, will not qualify as a QOZ investment. That is because in a triple net lease all the risk is pushed onto the tenant – obviously desirable from an economic standpoint for the landlord-investor, but not considered an active trade or business from the IRS’ perspective.

One way to try and capture the economic value of a triple net lease, but still leave some risk with the landlord, might be to gross-up the project’s rent but have the landlord pay for some or all of the typical triple net pass-through items. For example, rather than charging tenants $15 per square foot triple net, charge them $22 per square foot and have the landlord-investor pay for taxes, maintenance and insurance. That way the landlord-investor has the risk/reward if those triple net costs are higher or lower than the $7 increase in rent.

In addition, to further bolster the concept that the landlord investor is in an active trade or business, consider creating a consulting / strategic advisory role for the landlord in the tenant’s business. If these roles are legitimate and structured the right way, they may be sufficient to demonstrate the QOZ investment is not a typical passive real estate investment and is truly an active trade or business that is spurring economic growth and development within the QOZ.

Unfortunately, QOZs are still new and have yet to face significant IRS scrutiny such that reliable guidance is available to demonstrate the IRS’s position on these (and other) ideas. Investors weighing their options between a §1031 transaction and a QOZ project should consult with competent advisors to make sure they get the right deal with the proper economic structure that maximizes the associated tax benefits.

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