Property Taxes: Real Estate’s Innovation Gap
Summary: Property taxes represent nearly 40% of operating costs in commercial real estate—yet they remain one of the least digitized functions in the industry. As Congress debates the future of business property tax deductions, the sector faces both a policy risk and an opportunity for innovation. The next wave of proptech will emerge at the intersection of tax intelligence, data standardization, and automation, turning one of real estate’s largest expenses into a strategic advantage.
Property taxes are one of the largest and least automated expenses in commercial real estate. They fund schools, fire departments, and public infrastructure that sustain communities, but for owners, operators, and investors, they represent a significant and unavoidable cost of doing business.
In the U.S., state and local property taxes account for approximately 40% of all operating expenses in commercial real estate, surpassing the combined costs of utilities, maintenance, and insurance. For decades, these taxes have been deductible at the federal level, creating predictability and enabling long-term investment in commercial assets, housing, and infrastructure.
That stability is now under scrutiny.
Congress has debated changes to the State and Local Tax (SALT) deduction, which allows individuals and businesses to deduct taxes paid to state and local governments. While the 2025 “One Big Beautiful Bill Act” increased the individual SALT cap to $40,000, the Business SALT deduction, covering property taxes, remains fully intact. Yet proposals to limit or repeal the business deduction continue to circulate in Washington as potential budget offsets.
For commercial real estate, the implications are profound. Restricting the deductibility of business property taxes would increase effective tax rates to levels unseen since the 1970s, potentially depressing property values, constraining credit markets, and stalling new development.
However, this isn’t just a tax issue. It’s a data and technology issue, and that’s where proptech founders and investors should be paying attention.
The Hidden Weakness in the Industry’s Operating System
Despite trillions in asset value and decades of innovation in leasing, construction, and energy management, property tax management remains one of the most analog functions in real estate operations.
Local assessment data is fragmented across thousands of jurisdictions. Appeals are handled manually. Forecasting tax exposure requires complex, error-prone spreadsheets. For large owners, even identifying which properties have been reassessed can take weeks.
The result is systemic inefficiency, characterized by unpredictable cash flows, missed appeal deadlines, and opaque benchmarking. For lenders, inaccurate tax projections distort underwriting. For investors, the absence of standardized tax data means higher discount rates and lower valuations.
If business property tax deductibility is ever curtailed, these inefficiencies will amplify the financial impact overnight. In short, the industry’s weakest link—data transparency—will become its most expensive liability.
Where Innovation Is Needed
1. Property Tax Intelligence Platforms
There’s an unmet opportunity for software that aggregates parcel data, assessments, and levy rates into a unified forecasting engine. The ideal system would project future tax exposure under multiple scenarios, such as ownership changes, renovations, or shifts in local policy, and integrate those models directly into asset management systems and underwriting tools.
2. Automated Appeals and Assessment Accuracy
Appeals remain a manual, paper-heavy process. AI-driven solutions can analyze comps, identify over-assessments, automatically generate appeals, and benchmark success rates across jurisdictions. The opportunity lies in transforming a legal workflow into a scalable, data-driven product that saves owners millions of dollars annually.
3. Legislative and Policy Monitoring
Every year, hundreds of local ballot measures and tax code changes reshape effective property tax rates. A natural language processing engine that tracks, interprets, and quantifies these changes by jurisdiction and asset class would give investors and operators early warning before tax impacts materialize.
4. Integration with Capital Markets
Tax forecasting models should not exist in isolation. Integrating property tax intelligence into Argus, Excel, and lending systems would allow lenders, REITs, and investors to test debt coverage and valuation sensitivity with real-time accuracy. This integration is especially critical for credit investors underwriting long-term exposure to property performance.
5. Benchmarking and Transparency
Most investors cannot benchmark effective tax rates across portfolios or peer sets. A national tax benchmark—similar to the role CoStar plays in rent comps or CompStak in lease data—would enable real-time comparisons and improve price discovery in asset transactions.
The Policy Context
Preserving the business property tax deduction is essential for market stability, but it should also serve as a catalyst for modernization.
The federal government and states have an opportunity to partner with private technology firms to digitize assessment data, standardize tax reporting, and create transparency across jurisdictions. This is not just a matter of fairness—it’s a matter of national competitiveness.
The U.S. commercial real estate market represents nearly 9% of GDP. Yet one of its largest operating costs is still managed like a small-town ledger. This disconnect creates a massive inefficiency and a massive opportunity for innovation.
What This Means for Proptech
For founders, this is a new category hiding in plain sight. The next wave of proptech will not just optimize energy usage or leasing. It will help owners forecast, appeal, and manage the most unavoidable costs in their profit and loss (P&L) statement.
Startups that can build tax-intelligence APIs, integrate with underwriting systems, or automate appeals will position themselves at the intersection of data infrastructure, compliance, and financial performance, a space with enormous stickiness and recurring revenue potential.
For investors, this is an emerging vertical comparable to what ESG reporting and energy analytics were a decade ago. Tax risk is quantifiable, recurring, and universally relevant. Early movers that standardize property tax data across markets could create indispensable datasets—ones that power both financial underwriting and public-sector transparency.
