Are You Missing Out on Property Tax Savings?

San Francisco 49ers Comforting Themselves With a Tax Win Worth $180 Million

Even though the San Francisco 49ers lost to the Kansas City Chiefs in the Super Bowl, they are celebrating a major win off the field: a 50% reduction in property tax for the next 30 years, which will save the team approximately $180 million.

Their home, Levi Stadium, opened in 2014, at the time the tax assessor set a value of about $1 billion. The 49ers in challenging the property tax, argued that, since the team only uses the stadium for football during six months of the year, their property tax should be for 40% of the total value. (There’s an agreement in place with the city to share revenue from non-NFL events during the other six months.) In 2019, the Assessment Appeals Board mostly agreed and set the taxable basis at 50%, almost the full request. That forced local schools to return $13 million to the team in taxes already paid. It’s been in litigation for the past four years, but in November 2023 a judge ruled in the 49ers’ favor. The local assessor may still appeal, but for now it looks like a major win by the team.

Is that outcome just a fluke? Or is it a strategy other property owners could learn from to reduce their own taxes? At the very least, it should inspire you to look for abatements, exemptions and incentives you might be able to leverage for your own properties.

Where to Look for Property Tax Savings

The most valuable tax abatements have to be negotiated in advance. For example, a city may be willing to agree to a 10-year reduction in tax rates or assessed value in exchange for the economic growth or jobs they hope new development will bring. Central Texas has made national news by luring tech firms such as Tesla and SpaceX through local tax abatements. But you don’t have to be a big-name company to negotiate such deals. Smaller cities are also hungry for new restaurants, retail and other developments.

If you are building multifamily projects, even more options open up through affordable housing tax exemptions. A property could even be tax-free if you partner with a housing authority, agree to set aside some rental units as affordable housing, and sign a ground lease. As just one example, the Houston Housing Authority recently approved 100% tax exemptions for several new properties in affluent areas; those exemptions are valid for 75 to 99 years.

Some other kinds of special uses may be eligible for special deals. In one well-known case, a nonprofit country club in Beverly Hills with a property value of $8 billion pays only $220,000 per year in property taxes. The Los Angeles Country Club benefits from a 1960 California law limiting appraisals of nonprofit golf courses, combined with Proposition 13 passed in 1978, which essentially froze its valuation at 1975 levels. Not many owners are that fortunate, but if you’re thinking about developing a golf club, it’s worth keeping in mind.

Before You Close That Deal…

Local tax abatements and exemptions can take many forms. They can be negotiated with cities, schools and other local taxing authorities, either separately or together. The key is in performing proper tax due diligence before you close.

These are a few things to investigate when putting together a deal:

  • What kinds of tax abatements and incentives are available for your specific use? Different agencies may have opportunities specific to housing, manufacturing, retail or arts venues. Don’t assume your project is too small to be attractive; you may be offering exactly what a city or school district has been looking for.
  • What tax abatements and incentives are available in your target location? These vary widely from city to city and state to state — that’s why football teams often move to the next suburb. They’re looking for the best offer, and you don’t have to wear a championship ring to negotiate one of these deals.
  • Is there a legal structure that will enable you to access additional tax advantages, for example related to federal affordable housing incentives or development incentives?
  • Have you performed due diligence to identify what exemptions, taxability breaks and other benefits might be available for your project, beyond tax abatements?
  • Do you have professionals on your team who understand the options and how to design a deal that minimizes taxes and still accomplishes your other goals? 

Ideally, you’d have about six months of lead time to investigate potential arrangements and negotiate with local tax authorities. Keep these options in mind and get the right professionals involved early in the process. Waiting until you’ve purchased a property can leave you with a much bigger tax bill.

Weaver can help you identify and negotiate tax abatements, incentives and exemptions. If you’d like to explore some options, contact us now — even if you’re just in the dreaming stages.

Authored by Thomas Morris, CPA and Stephen Arredondo, CMI