Act 6-2019: Hired Appraisal for Real Property
Act 81-1991, known as the Municipal Revenue Collection Center Act, was recently amended by Act 6-2019 to authorize the appraisal of real property hired by the owner or “self-appraisals”. In addition, those taxpayers that pay for the appraisal will be able to deduct the expenses incurred in determining their real property tax. Below is a summary of the amendments.
- Hired appraisal by the owner
Any taxpayer may choose to hire the services of an Authorized Professional Evaluator, (hereinafter “EPA” by its Spanish acronym), with a valid license in Puerto Rico to appraise real property for the purpose of determining its classification and the real property tax that has not been previously appraised, including improvements. The EPA cannot be the owner, an employee of the owner, or be related to the owner within the fourth degree of consanguinity or second degree of affinity.
The hired appraisal will be governed by the following rules:
- It may be used for the appraisal of real property that has not been segregated; property previously appraised and having a cadastral number, and improvements not appraised to a previously appraised real property.
- The hired appraisal and payment of tax on structures not registered in the Property Registry or appraisals of real property that has not been formally segregated from another in the Property Registry will not have the legal effect of a segregation in the registry.
- To determine the appraised value to be used by the Municipal Revenue Collection Center (hereinafter “CRIM” by its Spanish acronym) for calculating real property tax, the value determined in the hired appraisal will be multiplied by 10.55%, as long as it is based on the market value of the real property or improvement. Any applicable exemption and/or exoneration will be subtracted from this value. The difference will be taxed at the property tax rate applicable to each municipality.
- For tax purposes, such appraisal value will be effective for the tax year in which the appraisal was made and for subsequent years. Nevertheless, as discussed below, the CRIM or the municipality may appraise the property themselves within 2 years of the hired appraisal.
Once the real property is appraised by its owner, the appraisal must be informed to the CRIM. For property or improvements not currently appraised, the hired appraisal must be submitted to the CRIM on or before December 31, 2020. For real property or improvements made after that date, the hired appraisal must be reported within 6 months after the acquisition of the property or 6 months after the construction of the improvement.
Once informed, the CRIM or the municipality can appraise and classify the property again, at their own cost. After going through the administrative and judicial review procedures, if any, the value of the property will be the one established by the CRIM or the municipality instead of the value determined by the hired appraisal. However, the classification and appraisal carried out by the CRIM or the municipality in accordance with the regular appraisal method will have a prospective effect, so no deficiency determination will be made for the years of appraisal in which the hired appraisal was correctly used and paid the corresponding tax accordingly.
If, within a period of 24 months after the hired appraisal is notified, the CRIM or the municipality does not classify and appraise said property according to the regular appraisal method, they cannot appraise it unless one of the following occurs:
- Subsequent substantial improvements or reconstructions are made to the property; or,
- Segregations and subdivisions of the property occur.
Any person who opts for the hired appraisal may, for the first fiscal year after the hired appraisal, deduct from their real property tax liability the expenses incurred and paid in the appraisal, up to a maximum of $500, if said appraisal was informed to the CRIM.
In the case of real property or improvements not appraised, the hired appraisal may be determined by the owner from reliable documentation that evidences it. For these purposes, the person may use the following duly certified documents: Estimated Cost Guidelines for Construction Works issued by the Office of Permits Management of Puerto Rico; notarized contract of the construction or improvement; approved Construction’s Permit; another public document that evidence the real or estimated construction cost.
Any person who furnishes a fraudulent appraisal with the intention of avoiding real property tax, will incur in a felony that will be sanctioned with a fine of $3,000 or imprisonment for 3 years, or both penalties, at the discretion of the court. Also, an amount equal to100% of the deficiency will be added to the deficiency.
If the owner does not to perform the hired appraisal, and it is left to the CRIM or the municipality, said agency may collect taxes retroactively up to 5 years from the date on which the appraisal is made.
- Review of real property, property not appraised
The Act also provides that the CRIM is responsible for the appraisal of all properties that are reported to have been appraised by its owner.
Likewise, it is provided that the imposition, notification and collection of the taxes corresponding to the property existing in 1991 and new construction properties may only be retroactive up to 5 years from the date in which the property is appraised. In other words, if the CRIM appraises an existing property in 1991 or a new construction property (after 1991), it will only be able to collect taxes retroactively up to 5 years before the appraisal.
In the case of substantial improvements or reconstructions in the principal residence of the taxpayer, the imposition, notification and collection of the corresponding tax will be prospective as of the date in which the appraisal is made.