What is an Accessory Dwelling Unit (ADU)?
An accessory dwelling unit (ADU) is a second dwelling unit created on a lot with a house, attached house or manufactured home. The second unit is created auxiliary to, and is smaller than, the main dwelling.
ADUs can be created in a variety of ways, including conversion of a portion of an existing house, addition to an existing house, conversion of an existing garage or the construction of an entirely new building.
Under Oregon's tax laws, the construction of an ADU could significantly increase the property taxes. That's because the amount of taxes levied each year and how they are determined is part of Oregon's complicated and complex law. It takes into consideration the effects of Measures 5 and 50, and those make it difficult to predict just how much taxes will increase or decrease if you build an ADU.
Before you start an ADU project, it's important to contact the assessor's office.
How will adding an ADU affect your property taxes?
In accordance with OAR 150-308-200 (formerly OAR 150-308.156(B)), Multnomah County assesses and taxes ADUs the same as any other new improvement to property:
- A Multnomah County appraiser will review/visit your property to appraise the entire property, including the new ADU, for purposes of Real Market Value determination.
- The added value associated with the construction of the ADU (and any other new improvements to the property) will be assessed.
Estimating Additional Taxes
The potential additional taxes associated with the ADU can be estimated by the following: The formula can be thought of as “ ((New Real Market Value Added x Changed Property Ratio)/1000) x Millage Rate) = Tax”
Changed Property Ratio (CPR) is a requirement per Oregon Administrative Rule 150-308-0170. The changed property ratio is the method in determining how new improvements to a property are assessed. The changed property ratio is determined by dividing all unchanged properties maximum assessed value by their real market value. This ratio is broken down into the property class a property is classified, such as Residential, Commercial and Industrial.
Market Value: If you are hiring a contractor to do the work, the cost of construction might be one type of estimate of a value for the new ADU. However, keep in mind that the cost does not necessarily equal market value.
Tax Rate: To find the tax rate for your area, locate the "code area" on your tax bill. Using the Levy Code Area Rate Sheet, look up the "total all rates" amount for your code area. Rates are expressed in dollars-per-thousand ($1/$1000).
- Estimated Market Value of New Construction x CPR = Additional Assessed Value
- Additional Assessed Value/1000) x Tax Rate = Estimated Additional Tax Amount
Warning: The above will not result in actual tax change as using historical Change Property Ratios and Mileage Rates will probably be inaccurate as both will not be the same for a future tax year. Change Property Ratio’s change every year and additional bonds and other measures are passed annually by the public. Also, results for properties in compression, going into or out of compression the following year, may differ.
For information on permitting fees and building requirements, contact the permitting jurisdiction for your property. The Multnomah County Assessor's office is not the authority for permitting or building requirements.
If you have more questions regarding the property tax implications of constructing an ADU, contact DART.