What are Property Taxes in California?
In the words of Benjamin Franklin, “Nothing is certain except death and taxes.” Very fitting he’s on the $100 bill right? Taxes are not my favorite thing and I’m sure they aren’t yours either, but they are unavoidable so let’s talk property taxes!
In L.A. county property taxes a safe bet to estimate is 1.25% of the purchase price of your home. This includes the 1% for property taxes plus any voter approved bonded indebtedness of the community. This can include Mello Roos, pest abatement, bonds for sewer districts, etc.
One thing you should always look out for after purchasing a property is a supplemental property tax bill. This bill is the difference between the tax based on the seller’s assessed value and the tax based on your new assessed value. This can amount to thousands of dollars so make sure you plan for this.
Also, make sure if you live in California to apply for the Homeowners’ Property Tax Exemption. This is a $7,000 reduction in the taxable value of a qualified owner-occupied home. If you qualify, you could save at least $70 each year on your property taxes. The card must be completed and returned between March 1st and April 15th. Applications submitted after April 15th, but before the end of the year will qualify for only 80% of the exemption.
There are a few ways to pay your taxes. You can pay a lump sum of your taxes all at once or pay your first installment on November 1st no later than December 10th or pay your second installment on February 1st no later than April 10th. You can also elect to have your property taxes rolled into your mortgage payment so you pay monthly and don’t have to worry about it.
The good news about California property taxes is that homeowners are protected by Proposition 13 caps the amount that property taxes can be increased to a maximum of 2% per year regardless of property value. This really comes into play after you’ve owned your property for a while because let’s say your property is appreciating 10% per year for the last 5 years and you purchased at $1M and your property taxes are $12,500. Now your property is worth $1.5M that would take your property taxes up to $18,750 that’s a $6,250 jump, but proposition 13 caps that number if you’ve lived in your home 5, 10, 15, 20 years.
California recently passed proposition 19 and this allows people 55 and older or who have severe disabilities to transfer their tax assessments anywhere within the state three times. Victims of natural disasters may also transfer their property tax base and there is not an age limit.
Previously under proposition 60 and 90 you could only transfer once, only certain counties were eligible and you had to purchase a property of equal or lesser value. Now you can transfer 3 times anywhere in the state and can be transferred to a more expensive home. Keep in mind, you must claim this within 2 years of selling your primary residence.
Proposition 19 does eliminate the parent-to-child or grandparents-grandchild tax assessment resetting exemption in cases where the child or grandchild does not use the inherited property as their principal residence. So if you are transferring the property to a child or grandchild, they must reside in the property to avoid reassessment. Also, the property must be valued under $1M to claim the reassessment exclusion. If the inherited property is used as the recipient’s principal residence, but is valued over $1M then the property will be reassessed at market value at the time of transfer. You must meet both requirements. 1. Must be a principal residence and 2. Must be valued under $1M in order to qualify for the reassessment exclusion. Always make sure to speak to a CPA or real estate attorney for your specific scenario.
If you would like to know more about property taxes or the home buying and selling process you can reach us at 424.333.5340 or AshleyandJonathan@RodeoRE.com. We would be honored to help you with your next real estate transaction!
Click the link below to get more information on property taxes on the County Assessor’s Website.