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Boston Property Owners Face Hidden Tax Penalties

Boston's commercial real estate landscape facing tax assessment challenges.

News Summary

Commercial property owners in Boston are encountering unexpected tax penalties during abatement filings, termed the ‘hidden penalty.’ This trend leads to increased property values and taxes, raising concerns about the financial stability of businesses. An analysis shows an average over-assessment of 37% in office properties, predicting significant budgetary shortfalls due to declining values. The situation raises questions about the city’s tax policy and its impact on the commercial real estate market as the mayoral election approaches.

Boston – Commercial property owners in Boston are grappling with unexpected tax penalties due to a phenomenon termed the “hidden penalty” during tax abatement filings. This situation is leading to increased assessed property values and significant hikes in property taxes, straining the financial stability of businesses in the city.

An analysis by Daniel Swift, a principal at Ryan, highlights a troubling trend where property owners are seeing their assessed values raised rather than lowered following tax appeals they believe are warranted due to excessive initial assessments. The implications of this trend are severe, with affected property owners facing additional property taxes amounting to thousands of dollars, some nearing $400,000.

For fiscal year 2025, the total assessed value of office properties in Boston reached approximately $33 billion, generating an estimated $865 million in property tax revenue for the city. Swift’s findings indicate an average of 37% over-assessment across the office property sector, suggesting a significant overvaluation of nearly $9 billion and over-taxation that could exceed $200 million.

Impact on Business and Budgets

The city’s fiscal landscape is further complicated by predictions from the Boston Policy Institute, which suggest that office property values could decline by 35-45% within the next five years. Such decreases could exacerbate an existing budgetary shortfall projected to reach $1.7 billion.

Property owners appealing their assessments have encountered unjust inflations in their property tax assessments. This raises constitutional and due process concerns, especially given that they are not provided with the proper notice of these changes. The appeal process, traditionally designed to establish fair market values, has seemingly inverted its function, generating unnecessary fees for properties that have actually seen a reduction in value.

Adjustment Trends and City Response

Despite adjustments made in fiscal year 2025—where Class A office properties saw assessments reduced by 4.5% and Class B/C properties by 12.8%—the current assessments are still inflated by an average of 37% above recent sales prices. The trend of declining office values is worsening, far exceeding prior projections, which originally estimated drops of only 20-30%.

In response to these challenges, Mayor Michelle Wu has previously undertaken efforts to shift the property tax burden more heavily onto commercial properties through a home rule petition. Critics have voiced concern that this policy could negatively impact the business environment further and discourage companies from investing in the city.

Future Considerations

As the mayoral election approaches, candidates are being scrutinized regarding their strategies for improving the commercial property taxation environment to attract businesses back to vacant buildings. The necessity for a balance between protecting residents financially through tax burdens and maintaining an attractive landscape for businesses continues to spark debate among stakeholders and the general public.

Supporters of the current tax shift argue it is essential for the financial well-being of city residents, while opponents contend that this approach may lead to increased costs for consumers and destabilize the commercial real estate market. With property taxes constituting 71.1% of Boston’s budget, the implications of these assessments bear a significant weight for the city’s financial future.

While the Wu administration disputes Swift’s analysis, asserting that Boston’s property valuations align with state law and accurately reflect market conditions, the concerning trends in property assessment raise critical questions that will need attention in the near future as the city grapples with the effects of declining office values.