Property Taxation

By pjain      Published Feb. 5, 2021, 8:22 p.m. in blog Fin-Plan-Strategy   

Part of Tax Series Tax Planning 101 - Retirement Planning and Taxes Series

Property Tax in California

Property Tax in California 101

SALT $10k limit severely hurts CA with high property, income and sales tax rates

Assessed value — Prop 13 controlled

The base on which property tax is calculated the value listed on your property tax bill on which the property tax is calculated. It is typically the fair market value of your home at the time you bought it, adjusted annually by up to the 2% allowed under Proposition 13.

Property tax rate is 1% + Local Levies

The property tax rate is 1% plus other voter-approved fees and assessments.

Moving to a new area is also likely to affect property taxes, because different cities and states set different regulations. For example, California has a 1% mostly in Bay area otherwise 0.76% effective real estate tax rate, while Oregon’s is 0.90%. Move to New York, and your new property tax rate is 1.71%. Even if you buy a home that’s valued exactly the same, your tax bill can change when you move.

Prop 13 passed 1978

1, Limits property rise 2% till sold by owners.

  1. For 55+ homeowners can transfer property tax basis to another property 1x. Eg sell $100k home rises to $250k, but actual market value rises to $1m. They then buy new home at $1m, their taxable property tax basis will be only $250k, not $m. But this is limited to homes of same or lesser value.

  2. Before in Prop 13, transfer of basis applied to only a few CA Counties.

  3. Inheritance is open in Prop 13, tax basis passes to heirs. Parents could transfer a primary residence to children without any new fair-market reassessment, regardless of how the children chose to use the real property. Effectively, this would allow children to avail themselves of the same property tax basis that their parents enjoyed. Additionally, any secondary property, such as a vacation home, rental property or commercial property, could be transferred with up to $1 million of the assessed value being exempt from the increase in property taxes — again, regardless of its use by the children.

Prop 19 passed Nov'2020

To take effect Feb 16, 2021 on.

  1. Transfer applies to any home even of greater value by blending the jump in value with original tax basis. For those property owners age 55 and older, they will be able to blend the taxable value of their old home with the value of a new, more expensive home, which will result in positive property tax savings. For example, if a senior couple sold their home with an assessed value of $250,000 for $2 million and bought a new home for $3 million, the new home’s assessed value would be $1.25 million, which is the $250,000 assessed value, plus the $1 million increase in home value.

  2. Now they can transfer basis to any other property upto THREE times. If a person is 55 years or older, has severe disabilities, or lost a home in a natural disaster, the person may transfer their tax assessment up to three times now (up from one).

  3. Before in Prop 13, transfer of basis applied to only a few CA Counties - now applies all over CA.

4a. Inheritance 1m Tax basis Limit. If a child chooses to keep the real property and use it as the child’s primary residence, then up to $1 million of the reassessed value will be excluded from the new property-tax basis. (Before, primary residences could be transferred with no cap.)

4b. So the new law also requires market-value reassessments for inherited properties that are not used as the heir’s principal residence.

4c. Secondary Home. If the child chooses to keep the property as a second home, vacation home or rental property (anything other than as the child’s primary residence), there is no $1 million exclusion and the child will face a significant increase in property taxes. Eg, if parents basis was $100k, now value of kids inherited (and kept as rental property) is say $1.5m, then they will be taxed on $1.5m not the parents' $100k.

Property Value Appeals and Inspections

Tax Assessor Inspection

Often your home may be taxed according to its perceived value or potential value, rather than the actual value an assessor could calculate if they can view the property in person.

So tax assessors esp. if you appeal will come, like appraisers and home insurance inspectors from outside only.

But, If you don’t allow a tax assessor inside your home, it tends to make assessors suspicious that you’re hiding expensive home improvements. Some towns have policies in place to assign the highest assessed value to the home in this case, and there’s no strong way to dispute the assessment without allowing a tax assessor inside.

Covid-19, Dire Local Economy can force to PEAK Property Tax Rates

City and state governments may turn to property tax increases to raise money, especially if federal aid isn’t sufficient to meet their needs. The city of Nashville, Tennessee, on the other hand, is making headlines for a “painful but necessary,” double-digit tax hike. - If your local schools are underfunded. Increasing property taxes for homeowners is often a major source of funding when governments put money into school programs or renovations. - Sometimes these come in form of school bonds and levies per parcel!

Some states, such as California, establish limits for how much the assessed value and property tax can increase in a given year. However, even within CA Prop 13 caps, you might still see the maxing out. Appealing can help as this is a mostly - do it and wait for appeals kind of gambit for cities and counties.

Prop 19 changed taxes for Elderly

New legislation can also have a positive effect on your property taxes, like the tax breaks for older and disabled homeowners in California’s Proposition 19 that was passed in November 2020. Previously, property tax increases were restricted for Californian homeowners to a certain extent, discouraging homeowners who have lived in their homes for a long time from moving to a newer home, for fear of losing their tax break. However, since Prop 19 has passed, homeowners 55 and older are able to pay a lower, blended tax rate using the taxable value of their current home as well as the value of their new, more expensive home. -

Appealing Property Taxes

In some cases, you may disagree with your local government on your home’s assessed value and what that means for your tax bill. If that happens to you, you have recourse to challenge the assessed valuation. Your tax assessor or local tax authority should be able to provide you with information on their specific dispute process, but it can help to gather a few materials in advance.

First, check on deadlines to submit a dispute. Different states allow different windows of time, often 30 days or 90 days, so it’s important to know how quickly you need to act.

Next, gather records on your home and nearby properties. Square footage, number of bedrooms, and sale prices on comparable listings all help present a more accurate picture of your property value. Information on the assessed value of other homes is also often public information. If you can show that another home with the same features as yours (or even additional ones, like a deck or pool) was assessed lower, you may be able to convince the assessor that there’s an error with your home valuation or request a second home appraisal.

If you are a senior, a veteran, or have a qualifying disability, your state, county, or municipality may also offer reduced taxes. Check with the tax bureaus in your area to see what exemptions they offer and whether you qualify.

Between 30 percent and 60 percent of taxable property has an inflated assessment, which may lead to higher property tax bills. Moreover, typically fewer than 5 percent of taxpayers dispute their assessment.¹

For homeowners who think their local government may have assessed their property’s value too high, there are ways to appeal and potentially win a lower assessment, which may save hundreds or even thousands of dollars annually in future taxes.²

The procedures and requirements for challenging the assessed value of your property will differ by state, but you should consider a number of general factors.

Determine Whether an Appeal Is Justified Your opinion of the fairness and accuracy of your property assessment is not enough. You will need to gather facts to support your claim. One way to do that is to see how your home compares to similar homes in your neighborhood.

Check to see if there are any obvious errors (e.g., is the square footage incorrect?). If you have found an outright error, you may be able to simply bring it to the assessor’s attention and get it corrected.

Consider the Cost-Benefit Ratio Appealing your assessment may cost you money, depending on the complexity of the process and whether you choose to use professional resources. You are the ultimate judge of weighing the costs related to some uncertain financial reward, but know the cost-benefit before you start. For instance, you may not want to spend $1,000 to save $200 per year.

Use an Independent Appraiser Your appeal will have less credence if the market evaluation is made by a local real estate agent. A comparative appraisal will carry considerably more weight when it is performed by a credible, third-party expert.

Follow All the Rules Appeals have precise deadlines and procedures. You need to meet them; otherwise you run the risk of losing out on the opportunity to have your appeal heard for another year. Call your local officials or visit the relevant website to familiarize yourself with the appeal process requirements.

National Taxpayers Union Foundation, 2018

Home Improvements Can Increase Property Taxes?

Casual Remodels and Upgrades - No Change

Does a patio increase property taxes?

A new roof has a high ROI as an essential maintenance item, but a swimming pool has little ROI and can actually be negative so should be able to appeal no property tax increase

Additions and Significant Value Add

What causes property taxes to increase is the change to your property value, whether the renovation was all function or just for fun.

How much will my taxes go up if I build an addition? Does a detached garage increase property taxes?

A detached garage that adds $40,000 of value will drive up property taxes more than a new roof that adds $12,000.

Estimating Home Value using ROI

One way to guesstimate property tax increases is to calculate your renovation’s budget, check the typical ROI for this kind of project, and multiply that against your local property tax rate.

So a $50,000 renovation with a 70% ROI should result in roughly a $35,000 home value increase. If you live in California and pay a 0.76% property tax, then you can expect to pay an additional $266 ($35,000 x 0.76%).



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