What Are Property Taxes?
Property tax in California is calculated by something called “Ad Velorum” which means value of the home.
Property taxes are a common source of revenue for local governments in California, funding essential services such as schools, public safety, and infrastructure maintenance. However, navigating the intricacies of property taxes can be confusing, especially for new homeowners or those who have recently made changes to their property. Two types of property tax bills that often raise questions are the standard Property Tax Bill and the Supplemental Tax Bill. In this article, we will break down the differences between these two types of tax bills in the state of California.
How are Property Taxes Calculated?
Assessment of property and calculation of property tax is determined by the California’s Proposition 13, passed in 1978. The basic principle for calculating is that you multiply the tax assessed value of your property by the tax rate.
The proposition determines that the standard state tax rate is set at 1% of the home value, however a good rule of thumb for California Homebuyers is to multiply their homes’ purchase price by 1.25%. This incorporates the base rate of 1% and additional local taxes, which are typically about .25%. (in some areas this may be higher)
Based on Prop 13 the value cannot go up to an amount beyond the rate of inflation that the Consumer Price Index measures, being limited to 2% per year.
The sales price listed on the deed is used to determine the base year value upon initial property purchase. Assessed value may also see adjustments through home improvements or when the home is sold.
Standard Property Tax Bill
The State of California’s fiscal year begins on July 1st and runs through the June 30th of the following year. The standard Property Tax Bill in California is issued annually, typically in the fall, by the county tax assessor's office. This bill is based on the assessed value of your property, which is determined when you purchase the property and then re-assessed periodically, usually when you make significant improvements or renovations. Here are some key characteristics of the standard Property Tax Bill:
Assessed Value: The standard Property Tax Bill is calculated based on the assessed value of your property at the time of purchase. In California, property tax assessments are limited by Proposition 13, which restricts annual increases to 2% of the previous assessed value, except when there is a change in ownership or significant alterations.
Due Date: These tax bills are typically due in two installments: The first installment covers the period from July 1st through December 31st and this tax payment is due by November 1st and becomes delinquent on December 10th. The second installment covers the period from January 1st through June 30th is due by February 1st and becomes delinquent on April 10th. Late payments can result in penalties and interest charges.
Payment Responsibility: The property owner is responsible for paying the standard Property Tax Bill. These taxes are not prorated if the property changes hands during the tax year.
Supplemental Tax Bill
A supplemental tax bill is an additional property tax bill based on the difference between the prior assessed value and the new assessed value of real property.
The supplemental bill covers the difference between the previously assessed value taxes and the newly assessed value when you purchased the home.
You may also receive a supplemental tax bill for changes that add property value, like adding square footage or special features like a swimming pool or fireplace.
The supplemental bill shows your home's change in value from the day you closed escrow, or reported the new construction, through the end of the fiscal year, which is June 30th. To calculate your supplemental tax bill, subtract your home's old value from the new market value based on the reassessment
Does your lender pay supplemental tax?
No. Unlike the annual tax bill, lending agencies do not receive a copy of the supplemental tax bill. When you receive a supplemental tax bill, you must contact your lender to determine if this can be paid out of your escrow account or if you will need to pay it directly.
Supplemental Tax Bills in California are quite different from standard Property Tax Bills. They are issued when certain conditions trigger a reassessment of your property's value. Here's what you need to know about Supplemental Tax Bills:
Reassessment Triggers: Several events can trigger a reassessment and the issuance of a Supplemental Tax Bill. These events include the purchase of a property, new construction, significant renovations, and changes in property ownership.
Timing: Unlike the standard Property Tax Bill, which is issued annually, Supplemental Tax Bills are issued when the reassessment event occurs. This means that they can be issued at any time during the year.
Prorated Taxes: Supplemental Tax Bills cover the period from the reassessment event until the end of the fiscal year (June 30th). Taxes are calculated on a prorated basis, so you only pay for the portion of the year during which you owned the property, or the changes took place.
Payment Responsibility: The responsibility for paying a Supplemental Tax Bill can vary depending on the reassessment event. If you purchase a property, you are typically responsible for the bill. However, if you make significant renovations, you may receive the bill as the property owner.
Conclusion
Understanding the differences between standard Property Tax Bills and Supplemental Tax Bills is crucial for homeowners in California. While standard Property Tax Bills are issued annually based on the assessed value of your property, Supplemental Tax Bills are triggered by specific events and cover a prorated period. Both types of bills are essential for funding local government services, so it is essential to be aware of your tax obligations to avoid penalties and ensure that your property taxes are accurately assessed. If you have questions or concerns about your property taxes, it is advisable to consult with your county tax assessor's office or a qualified tax professional to ensure compliance with California's complex property tax laws.
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