What is the highest and best use of real estate?
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For example, if a parcel is currently improved with a dry cleaner, but zoning would allow an office building that could yield a higher value, the costs associated with cleaning up the property (remediating the property from any potential contaminates) would be cost prohibitive or cost so much as to leave the current or ...
Highest and best use may be defined as "the reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value."
Most appraisal textbooks define "Highest and Best Use" as the most profitable, legally permitted, economically feasible, and physically possible use of a piece of real estate. In some cases, this analysis can be one of the most important factors in the determination of value for the subject real estate.
A highest and best use study is an important tool for real estate decision makers, as it helps to determine the most economically feasible use of a property. The study considers the potential uses of a property and evaluates which use would generate the greatest financial return.
For example, assume that "House B" has a value as a house of $200,000, and a site value as a commercial lot of $250,000 with a cost to demolish the house and prepare the site at $25,000. The highest and best use of the site is to demolish the house and sell the site as a commercial lot.
The highest and best use is a recognized theory used in conjunction with the appraisal process. This theory is founded in the correlation between the highest probable value of the property and its highest and best use to attain the highest return on the owner's original investment.
1. New Jersey. New Jersey earns the top spot as highest property taxes not only in property tax rate, which is over the 2% mark, but in the actual dollars spent in property taxes; here the average home value is the highest on the list.
If you itemize your deductions, you can deduct the property taxes you pay on your main residence and any other real estate you own. The total amount of deductible state and local income taxes, including property taxes, is limited to $10,000 per year.
- California: 7.25% sales tax rate.
- Indiana: 7% sales tax rate.
- Mississippi: 7% sales tax rate.
- Rhode Island 7% sales tax rate.
- Tennessee: 7% sales tax rate.
- Minnesota: 6.875% sales tax rate.
- Nevada: 6.85% sales tax rate.
- New Jersey: 6.625% sales tax rate.
What is the first step of the highest and best use analysis process?
When conducting your highest and best use study you will: (1) only consider the land value and assume the house has no value. (2) decide which use is the most appropriate and value the property on that basis only. (3) value each alternative separately and state them in your report.
The appraiser applies four accepted tests in arriving at the highest and best use for a property. The use must be (1) Legally permissible; (2) Physically possible; (3) Economically feasible; and (4) The most productive use. There may be two highest and best uses, one with the site vacant and the other as improved.
Explanation: In order to qualify, as a property's highest and best use, the use must meet four criteria. The use must be: (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive.
As the seller, you usually ask for the highest and best offer to eliminate negotiations and expedite the deal. It lets buyers know you're looking for only the most serious offers. Conversely, with a best and final offer, you're asking buyers to go above and beyond the competition to convince you to sell to them.
The highest and best use analysis serves as an essential tool in estimating real property value. The analysis reveals what type of development would result in the highest market value from among the most financially feasible uses that have the physical ability to adapt within the legal limitations.
A highest and best offer request is usually made when a seller has received multiple offers on their home and asks all prospective buyers to submit their most attractive bids within a specific time limit.
Highest and best use of a property as improved pertains to the use that should be made on an improved property in light of its improvements. LEGALLY PERMISSIBLE: Must conform with zoning, building codes, environmental regulations, etc.
The Four Tests to Determine Highest and Best Use. When looking at the highest and best use (HBU) of a property, the potential use must meet four tests in order to qualify as an appropriate HBU. Specifically, the use needs to be physically possible, legally permissible, financially feasible, and maximally productive.
As of 2023, nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax.
Sadly for investors, the answer is no, there are no states without property tax. This is because property tax is a useful way for local governments to fund public services such as schools, fire and police departments, infrastructure and libraries.
Which states have the worst estate tax?
- Connecticut: 12%, $9,100,000.
- District of Columbia: 16%, $4,000,000.
- Hawaii: 20%, $5,490,000.
- Illinois: 16%, $4,254,800.
- Maine: 12%, $6,010,000.
- Maryland: 16%, $5,000,000.
- Massachusetts: 16%, $1,000,000.
- Minnesota: 16%, $3,000,000.
You can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you are married filing separately, the limit drops to $375,000.
As of 2021, California property owners may deduct up to $10,000 of their property taxes from their federal income tax if they are filing as single or married filing jointly. Unfortunately, any property taxes you have paid in excess of $10,000 cannot be counted toward your deduction.
Before the TCJA, the mortgage interest deduction limit was on loans up to $1 million. Now, the loan limit is $750,000. For the 2024 tax year, married couples filing jointly, single filers and heads of households can deduct up to $750,000. Married taxpayers filing separately can deduct up to $375,000 each.
According to the updated MoneyGeek analysis, the most “tax friendly” state overall was Nevada, where the median family owes about 3% of its income in taxes. Meanwhile, 13 states earned either a D or F grade for tax burdens.
