Douglas Olsen
The question of whether student housing is subject to property tax depends on several factors, including the location of the property, the type of housing, and the number of occupants. In some jurisdictions, student housing owned and operated by colleges or universities may be exempt from property taxes if it is used exclusively for educational purposes. However, if the property is rented to non-students or used for commercial purposes, the exemption may not apply. In the case of off-campus student housing, the situation becomes more complex, as the tax implications can vary depending on the ownership and usage of the property. In general, full-time students are often exempt from paying council tax, but part-time students and non-students may be liable for a portion or the entirety of the tax bill. Understanding the specific rules and regulations pertaining to property tax and student housing in a given location is essential to determining the tax obligations of student housing providers and occupants.
Do student housing have to pay property tax?
| Characteristics | Values |
|---|---|
| Student housing owned by colleges | Exempt from property tax |
| Student housing owned by private landlords | Not exempt from property tax |
| Student housing with non-student guests | Still exempt from property tax |
| Student housing with commercial or fund-raising use | Not exempt from property tax |
| Student housing with negligible market value | Zero property tax liability |
| Student housing with ancillary services | Need to differentiate revenue from real estate value for taxation |
| Student housing with high vacancy rates | May affect property valuation for taxation |
| Parents owning a second home for a child in college | Eligible for mortgage interest and property tax deductions |
| Parents renting out second home to other students | Changes tax status and rent is included in gross income |
| Full-time students in shared housing with non-students | Exempt from council tax, but non-students may be liable |
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What You'll Learn
Student housing property tax exemption criteria
United States:
In the United States, student housing property tax exemptions often depend on the specific state and its regulations. Some common criteria include:
- Exclusive Educational Use: To qualify for exemption, property must be used exclusively for educational purposes, including student housing that is reasonably necessary to fulfil the college's function.
- Non-profit Status: Property owned and used by a non-profit institution of higher education may be exempt if it is controlled by colleges qualifying under specific sections of the Revenue and Taxation Code and operated for the exclusive benefit of those colleges.
- Negligible Market Value: Even without a statutory exemption, a property with negligible market value may not incur property tax liability.
- Public-Private Partnerships (P3s): The taxability of P3 agreements in student housing can vary, and parties should carefully consider tax implications when drafting contracts.
- Ownership and Operation: Dormitories owned and operated by colleges and universities have traditionally been exempt from property tax. However, properties owned or managed by third parties may still qualify for exemptions if the school is deemed the beneficial owner.
United Kingdom:
In the United Kingdom, student housing property tax, often referred to as council tax, is handled differently:
- Full-time Students: Full-time students are often ''disregarded' for council tax purposes, meaning the tax is calculated as if they don't live at the property, potentially resulting in a discount for other residents.
- Proof of Student Status: Local councils may request proof of full-time student status, such as a certificate from the university or college.
- Non-British Dependants: Special rules apply when a student lives with a non-British spouse, partner, or dependant.
- House in Multiple Occupation (HMO): If students live in an HMO, which includes shared houses or hostels with non-family members, the owner of the property is liable to pay council tax.
These criteria provide a framework for understanding student housing property tax exemptions, but specific regulations and interpretations can vary by region and individual circumstances. It is always advisable to consult official sources and seek professional tax advice for precise information.
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Council tax for part-time students
In the UK, council tax is a tax paid by households to fund local services, such as trash collection, road maintenance, and the police force. Households where everyone is a full-time student do not have to pay council tax. However, if you do get a bill, you can apply for an exemption. To qualify as a full-time student, your course must require a minimum of 21 hours of study per week and be longer than a year.
If there is someone in your household who is not a full-time student, your household may still qualify for a discount. For example, if you live with a part-time student, they will likely be liable for 75% of the council tax bill, as they do not count as an adult for council tax purposes.
To apply for a council tax exemption, you will need to contact your local council and provide supporting documentation, such as proof of your student status. This could include a letter from your university or college confirming your enrollment or a copy of your student ID card. The process typically takes a few days, but additional information may be required, so it is important to apply in a timely manner.
It is important to note that if your study, tuition, or work does not take place on campus, you may have difficulty proving your student status for council tax purposes. In this case, you may be able to challenge the local council's decision and should seek advice from your students' union or university's advice center.
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Property tax for student housing with non-students
In California, property used exclusively for educational purposes, including housing for students, faculty, administrators, and guests, is exempt from property tax. However, if a college rents out a portion of its campus to non-college organisations or persons for commercial purposes, such as meetings or catering businesses, that portion of the property is not exempt from property tax.
In the UK, full-time students are 'disregarded' for council tax purposes, meaning the tax is calculated as if they don't live in the property. The person liable for the council tax may be able to get a discount due to this 'disregard'. If a property is a house in multiple occupations (HMO), the owner of the property is liable to pay the council tax.
In Michigan, a dependent student living in rented accommodation may be able to claim the homestead property tax credit if they file their own tax return.
In West Virginia, a recent court case determined that a new student housing development could be assessed as having no market value, resulting in zero taxes owed. This was due to the university subleasing the development and collecting rent, with 50% of the net cash returned to the developer as a payment on the lease.
It is important to note that property tax laws can vary by location, and specific circumstances may apply.
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Tax benefits of owning a second home for a child in college
There are several tax benefits associated with owning a second home for a child in college. Firstly, parents can take advantage of tax deductions on mortgage interest and property taxes. Under IRC section 164(a), taxpayers are allowed to deduct property taxes, up to a limit of $10,000 for taxable years between 2018 and 2025, as per IRC section 164(b)(6). Similarly, IRC section 163(h) allows for the deduction of qualified residence interest, which includes the taxpayer's principal residence and one other dwelling unit used as a residence. This means that if parents buy a second home for their child to live in while at college, they can deduct mortgage interest on both their primary residence and the child's college residence.
Another benefit is the potential for the property to increase in value, which can offset student housing costs. Additionally, if the property is rented out, any revenue generated can further help to offset these costs. It is important to note that if a second home is rented out for more than 14 days, the owner may be subject to income tax on rental earnings.
In the case of a single occupancy home, parents can benefit from mortgage interest and property tax deductions, as well as potential value appreciation, without the responsibilities associated with being a landlord. On the other hand, renting out the property can provide the child with real-world experience in property management.
Furthermore, the purchase of a second home for a college student can be considered an investment, reducing overall college expenses. This is especially true if the child has roommates who contribute to the rent, as any rent paid by roommates can be considered support provided to the college student.
It is worth noting that the tax implications of owning a second home can be complex, and it is recommended to consult with a tax advisor to understand how it may affect financial goals and to determine the best course of action.
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Student housing ancillary services revenue
Student housing providers are increasingly turning to ancillary services to generate significant revenue. Ancillary services can help owners improve occupancy, justify higher rents, and increase tenant satisfaction. These services are particularly important as a source of revenue distinct from real estate value, which can be subject to fluctuations in the market.
Ancillary services can include a range of offerings, such as high-speed internet, fitness centres, and on-site laundry services. Some student housing providers also offer cleaning services, bundled laundry services, and self-service mini-markets with snacks, drinks, and school supplies. These conveniences cater to the needs and preferences of student renters, who are often willing to pay a premium for a higher standard of living.
Another strategy to increase revenue is through partnerships with local businesses. Student housing managers may sell advertising space to local restaurants, retailers, and service providers, or collaborate with local bicycle rental stations and share revenue from rentals.
It is important for student housing providers to differentiate ancillary services revenue from the real estate value of the property. This distinction is crucial when it comes to property tax liability, as including revenue from ancillary services in property valuations can lead to inflated assessments and excessive property tax bills. By carefully reviewing assessments and challenging any discrepancies, student housing owners can ensure fair property valuations and reduce their tax liability.
Overall, ancillary services play a vital role in the student housing business, providing additional revenue streams and enhancing the overall experience for student residents.
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Frequently asked questions
University students are exempt from paying property tax or council tax if the property they live in is occupied entirely by full-time university students. If some housemates are not full-time students, the household may still get a discount on the council tax bill.
If your student housing is not exempt, you may still be 'regarded'. This means the council tax is calculated as if you don't live there, and whoever does have to pay the council tax may get a discount.
In this case, your parents may be able to deduct certain expenses, such as mortgage interest and property tax, from their taxes. These deductions can help offset the cost of housing.
