Rollback (Assessment Limitation Order)

More than 20 years ago, residential property values were rising quickly. The legislature wanted to continue the practice of assessing residential property at fair market value, but limit the increase in how much the taxable value could increase in any given year (the limit is set at 4 percent for residential and agricultural class). To help cushion the impact of high inflation, the Legislature passed an assessment limitation law called rollback. This held property taxes down, and was well intended -- for without this change many homeowners would no longer have been able to afford their taxes.

This concept is known as "rollback," because it rolls back the taxable value of a house.

• Assessment limitations were first applied in 1978 with 6% growth allowed for the taxable value of agricultural and residential property.
• For 1979, the allowed growth was 6% for agricultural, residential, commercial, and industrial properties, and 10% for utility property.
• For 1980 through 2012, the allowed growth was 8% for utility properties and 4% for the other classes of property.
• Starting in 2013, the allowed growth for residential and agricultural property is 3%

• The actual market value of a property, according to the assessor's best estimate
• Intended to be an estimate of the selling price a property could demand on the market

• The portion of a property's assessed value that is actually subject to property tax
• Is never more than assessed value
• Can equal assessed value, but it can also be less than assessed value because of exemptions, credits and the rollback

• Total taxable valuation in each class of property cannot increase by more than 4 percent any given year
• Taxable value for utility property is limited to 8% annual statewide growth from revaluation
• Railroad property is adjusted by the lowest of the assessment limitation percentages for commercial, industrial, and utility property

The following example assumes that the 4% limit in growth is not reduced due to agricultural valuations.
Starting Year
Assessed value = $2,000,000
Taxable value = $1,000,000
Rollback = 50% ($1,000,000 taxable divided by $2,000,000 assessed)

Even if there is no growth in assessed value, there is still a 4 percent increase in residential taxable value due to the operation of the rollback. Whatever happens to assessed value, the rollback will always compensate in a way that results in a 4 percent growth in taxable value. New construction will result in additional taxable value above the 4 percent growth.

• No Growth in Statewide Assessment
  Subsequent Year
  • Assessed value = $2,000,000
  • Taxable value = $1,040,000 ($1,000,000 times 4% statutory limitation)
  • Rollback = 52% ($1,040,000 taxable divided by $2,000,000 assessed)
• 10% Decline due to revaluation
  Subsequent Year
  • Assessed value = $1,800,000 ($2,000,000 prior year assessed minus $200,000 decline)
  • Taxable value = $1,040,000 ($1,000,000 times 4% statutory limitation)
  • Rollback = 57.78% ($1,040,000 taxable divided by $1,800,000 assessed)
• 10% Growth due to revaluation
  Subsequent Year
  • Assessed value = $2,200,000 ($2,000,000 prior year plus $200,000 growth)
  • Taxable value = $1,040,000 ($1,000,000 prior taxable times 4% assessment limitation)
  • Rollback = 47.27% ($1,040,000 taxable value / $2,200,000 assessed value)
• 10% Growth all due to new construction
  Subsequent Year
  • Assessed value = $2,200,000 ($2,000,000 prior year plus $200,000 new construction growth)
  • Assessed value used for rollback calculation = $2,000,000 ($200,000 new construction is not included)
  • Taxable value = $1,040,000 ($1,000,000 prior taxable times 4% assessment limitation)
  • Rollback = 52% ($1,040,000 taxable divided by $2,000,000 assessed)
  • Additional taxable value due to new construction = $104,000 ($200,000 new construction times 52% rollback)
  • Total Taxable value = $1,144,000 ($1,040,000 taxable value + 104,000 taxable new construction)
• 20% Growth - 10% revaluation and 10% new construction
  Subsequent Year
  • Assessed value = $2,400,000 ($2,000,000 prior year plus $200,000 new construction growth plus $200,000 revaluation)
  • Assessed value used for rollback calculation = $2,200,000 ($200,000 new construction is not included )
  • Taxable value = $1,040,000 ($1,000,000 prior taxable times 4% assessment limitation)
  • Rollback = 47.27% ($1,040,000 taxable divided by $2,200,000 assessed)
  • Additional taxable value due to new construction = $94,540 ($200,000 new construction times 47.27% rollback)
  • Total Taxable value = $1,134,540 ($1,040,000 taxable value + 94,540 taxable new construction)

• Taxable growth in one class of property cannot exceed that in the other class with one exception: if either class experienced negative growth, the other class would be limited to zero growth: it would not have to go negative
• Prior to 2007, the rollback was holding down the portion of residential values to less than 4 percent growth because of the tie to agricultural class
• During years of low agricultural growth, this limited the growth in residential taxable value
• If rollback is already at 100% for either residential or agricultural classes (as it was for ag for many years), then the allowable growth in taxable value for the other class is the lower of the growth rates of the two classes, up to 4 percent
• Now agricultural is below 100 percent ( and will be for many years to come) and is no longer acting as a limit, so residential is reaching its 4 percent statutory level

There was concern that the limitation would shift the tax burden from residential to agricultural property, or vice versa. This was addressed with a provision that coupled average increases in one classification to average increases in the other. So ever since, residential and agricultural valuations have been linked. This means the annual increases for each property are limited to the smaller of the two increases in either class of property.

Example: If in a given year the increase in residential taxable valuations was 4 percent (remember it cannot be higher than 4 percent due to the rollback limitation) and the increase in agricultural property was only 2 percent, then the increase in residential taxable valuations would be reduced to 2 percent as well.

Until recently, agricultural valuations, which are based on land productivity and commodity prices, have been flat. So even though home prices soared over the years, increases in residential taxable valuations were very limited. But in the past few years, agricultural land values have increased significantly, which in turn has unleashed the restraint on residential taxable values. Due to the fact that agricultural valuations are based on a productivity and net earning capacity formula prescribed by law that is computed based on five years of average crop yields and prices, agricultural valuations will not limit growth in residential taxable valuations for many years to come.

The result is that even though residential price appreciation has slowed, or in some cases reversed, the percentage of the property that can be taxed is actually increasing. In fact, there has become such a chasm between assessed values and taxable values that there is now plenty of room for taxable values to catch up.

Rapidly growing areas can see an increase in the tax base, though a smaller one than would result in the absence of a rollback. Slow-growing areas, however, may see an actual decline in taxable values over time even while the costs of government increase simply due to inflation. The following paragraph (quoted from Iowa State Association of Counties, Rollback Q & A ) illustrates this.

The rollback applies uniformly statewide. All residential property, from Council Bluffs to Dubuque, gets the same rollback. A significant problem with uniform application is that there are very different housing markets around the state.

Commercial and industrial property is also subject to a rollback, and is currently taxed at 90 percent of value.

Starting with the 2015 assessment year, there is a new classification of property called multi-residential. Multi-residential properties consist of:

• Mobile home parks;
• Manufactured home communities;
• Land-leased communities;
• Assisted living facilities;
• Property primarily used or intended for human habitation containing three or more separate dwelling units
• The portion of a building that is used or intended for human habitation and a proportionate share of the land upon which the building is situated, regardless of the number of dwelling units located within the building, if the use of human habitation is not the primary use of the building and such building is otherwise classified as residential property.

For parcels that partially satisfy the requirements for classification as multiresidential property, the assessor shall classify that portion of the parcel as multiresidential property. The remaining portion of the parcel shall be classified as the classification for which it qualifies.

Property that is rented or leased to low-income individuals or families which is assessed as Section 42 housing or a hotel, motel, inn, or other building where rooms or dwelling units are usually rented for less than one month cannot be classified as multiresidential property.

2015 Assessment Year - 86.25%
2016 Assessment Year - 82.50%
2017 Assessment Year - 78.75%
2018 Assessment Year - 75.00%
2019 Assessment Year - 71.25%
2020 Assessment Year - 67.50%
2021 Assessment Year - 63.75%
2022 Assessment Year - same as residential rollback

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