Big Change to ADU Taxation Rules

Last week the Oregon Department of Revenue issued a new draft rule clarifying existing tax rules for newly constructed Auxiliary Dwelling Units (ADUs) in Oregon.

Starting in 2015, Multnomah County arbitrarily (and without warning) altered the way it interpreted existing tax law surrounding ADUs. Originally, when a homeowner built an ADU it was considered an “improvement” to the property and taxes increased accordingly – in relation to the value added to the property by the ADU. While this approach still resulted in significant tax increases, those increases were predictable and within reason. Last year, without warning, the county changed it’s interpretation of existing tax code and determined that when an ADU is built the owners are taking advantage of a “zoning change” so the ENTIRE property is reassessed, thus raising the taxes on the existing structure(s) plus adding new taxes for the ADU. This resulted in tax increases of over 500% in some cases. Needless to say, this new calculation, while bringing in added revenue for the county, would effectively stall (if not eliminate) much of the building of ADUs around the city if left unchecked. During a time when Portland is in need of more housing, disincentivizing construction of new housing seems to be a poor strategy.

Fortunately, the Oregon Department of Revenue has now stepped in and issued a draft rule that supersedes Multnomah County’s interpretation. The rule requires the county to revert back to it’s original interpretation of assessing only the valued added of new ADU construction. This effectively ends the exorbitant tax increases homeowners were saddled with and clarifies what to expect when planning to build an ADU. So if you were considering adding an ADU to your property, this is great news.

To learn more, read‘s The Second Coming of Detached ADUs in Portland

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