What Colorado Investors Need to Know About the Repeal of the Gallagher Amendment

By Jacob Mueller

While no immediate effects are felt, the recently repealed Gallagher Amendment will change real estate property taxes. As investors and property managers, we continually evaluate our local economy and governments, providing resources for both ourselves and our clients. The recent repeal of the Gallagher Amendment has far reaching consequences for real estate investors big and small, commercial and residential.

In 1982, Colorado citizens modified the state constitution to provide relief from rising tax bills on their residences. This modification was known as the Gallagher Amendment. The amendment fixed the proportions of the tax base between residential (45%) and commercial (55%) property. When residential property increases in value to a greater degree than commercial, then the tax rates paid by homeowners falls (Note: residential property includes single-family, small multi-family, and commercial multi-family).

The Gallagher amendment also fixed the assessment rate of commercial property at 29% while allowing the residential assessment rate to fluctuate to maintain the proportions above. At the time of implementation, the residential assessment rate was 21%. Today, however, the residential assessment rate has fallen to 7.15% while the commercial assessment rate has remained 29% because residential property values have increased far more quickly than commercial property values.

As a result, Colorado has some of the lowest residential property taxes in the country.

While the history and mechanics of Gallagher have briefly been explained, the amendment is no longer applicable. On November 3rd, 2020, the Gallagher Amendment was repealed. As part of Amendment B, there is a moratorium on all assessment rate changes for both residential and commercial property for 2021. No need to panic!

That said, 2022 and beyond may be another story…

Under Colorado’s constitution, we have a unique tax system, called TABOR, an acronym for the Taxpayer’s Bill Of Rights. As a result of TABOR, any and every tax rate increase for commercial or residential property requires voter approval. Therefore in 2022 you will almost certainly see ballot issues increasing the assessment rate of property taxes, both residential and commercial. How the voters will decide is unknown…

Based on this information and change to Colorado property tax law, the canny real estate investor will prepare for the unknown by saving extra cash in 2021 to account for the two increased costs of ownership. First, increasing assessed values of property. Second, increasing assessment rates for residential property and possibly commercial property.