California Property Taxes 101 – Part 1 in my What to Know About CA Property Taxes Series.

If you have been wondering what California property taxes are all about and how they stack up to the rest of the country, then you’re in the right place!

I’m my 5 week series, What to Know About CA Property Taxes, I will take you through the basics, followed by all the many things you need to know, including Mello-Roos Taxes, Supplemental Taxes, and we’ll even cover reassessment exclusions that may apply to reduce your tax bill, and in some cases, eliminate them altogether. Each week builds on each other, so make sure you start from the beginning.

This week, we are covering the basics. For those of you that don’t really know what property taxes are in the first place, let’s cover this first.

What Are Property Taxes?

Property taxes are taxes imposed by your local County Assessor’s office to maintain your property and the local county you reside in. There are additional taxes sometimes incurred to pay for additional things like local emergency response teams such as your local fire dept., police dept., ambulance, etc. But we’ll cover that later.

The local Assessor will come out and assess your property and will charge a percentage of this assessed value in the form of a property tax payment every year. You will generally receive 2 bills each year so that you don’t have to pay your property taxes in one lump sum.

Assessed Value versus Appraised Value

An “assessed value” is different than your “appraised value” that your lender will do before you purchase your home. It’s important to know this distinction in case your assessed value and appraised value are substantially different from one another. You can file an appeal with your Assessor’s office if you find yourself in this situation. I will also cover this later.

When Is Your Property Assessed?

Each state has their own guidelines for when (and how often) your property will be assessed. In California, we’re what’s known as an “acquisition-based assessment system.”

In a nutshell, this means that a CA property is ONLY assessed at the time of acquisition (or change in ownership). Your property can also be reassessed if you make substantial improvements to your home, but that reassessment will only apply to that portion of your home that was improved.

Now, if you bought a parcel of land and built an entire house on the property, then of course, the entire house is going to be reassessed.

Not all states assess their properties this way. In fact, most states will reassess a property as often as every single year! This could be a huge pain if property values significantly increase during that year. Your property taxes could more than double in some areas.

For instance, Texas. They just did some property tax reform effective December 2023, which I’m guessing probably arose from all the many Californians that relocated to TX and realized how differently they imposed their property taxes and weren’t happy.

Texas used to reassess their properties every year. Now, it’s every 3 years. They also have a cap on how much they can increase their property taxes, I believe as much as 10%.

Now before you get all upset with me that I’m picking on Texas, I’m just using it as a comparison so you can understand CA property taxes a bit easier.

How CA Property Taxes are Calculated

In 1978, California went through it’s own major property tax reform in what’s known as Proposition 13 (“Prop 13”). It stipulated not only when a property was to be assessed, but it also outlined how much property taxes could be, and how much they could increase year over year.

The tax rate in CA is set to 1% of the base year tax value (AKA at the time of acquisition/change in ownership). It could increase up to 2% each year thereafter.

However, there are additional taxes that your local county can impose to cover costs such as the emergency services I mentioned above. There can also be things like School Bonds, and other “Special Taxes” also known as “Mello-Roos” taxes added to your property taxes.

Mello-Roos taxes are essentially a work around Prop 13 to be able to afford to pay for school improvements, and additional things like adding in a park or to cover the costs of the infrastructure of a new community (e.g. storm drains, sewer lines, etc.).

I will cover Mello-Roos taxes next week so stay tuned for that. But don’t be too alarmed, these Special Taxes don’t usually increase your property taxes too much. For instance, in Ione, the tax rate equates to roughly 1.8%.

There is also a 2/3 majority vote that has to happen before homeowners are charged any additional taxes for school bonds, etc. So, you don’t have to worry that these costs will be tacked on without your knowledge. But again, I will cover all of this more in-depth next week.

 When Do I Pay My CA Property Taxes?

California’s property tax system runs on a Fiscal Year that begins on July 1^st and ends on the following June 30^th. You will receive 2 property tax bills and depending on which county in CA you live in, your first tax bill will be due in November, and your second tax bill will be due the following April.

It’s also important to note (and this is where it can get a bit confusing), that even though property taxes run on a fiscal year, your property taxes are actually calculated as of January 1^st each calendar year. A tax levy is also placed on your property at this time.

But don’t let the word “levy” scare you. It usually won’t be a problem for you because it falls off your property as soon as you pay your taxes. The only time it will pose a problem of course is if you don’t pay them! 😉  

Why You Should Know the Difference Between Fiscal Year and Calendar Year

I want you to understand the difference between Fiscal Year and Calendar Year when it comes to your CA property taxes, because it will make more sense later when we start talking about what’s called “Supplemental Taxes.” These are additional taxes that you will need to pay once you purchase a home.

I will cover this in week 3 of this series, but for now, all you need to be aware of is that these supplemental taxes are basically the difference between the property taxes that were calculated as of January 1^st thru the new assessed value the month following the date you purchase the property. And depending on what time of the year you purchase; you may have to pay 1 or 2 supplemental bills.

If you want to know more about Supplemental taxes and don’t want to wait, you can reach out to me anytime and I’ll give you the details now. You can also visit your local County Assessor’s website for more information as well.

Final Words About CA Property Taxes

I know this can get a bit confusing at first, especially if this is your first time purchasing a home. But I promise, it will start to make a lot more sense once you actually get your first tax bill.

As an added bonus, you will typically have your property taxes paid from an escrow account, so you don’t have to worry too much about them. Plus, you will also typically pay the first year of your property taxes as part of your closing costs.

If you choose not to have your property taxes escrowed, I highly suggest that you set up a separate savings account on your own where you set aside a portion of your estimated property taxes each month to go into this account.

That way when you get your tax bill, it won’t be such a huge burden to pay all at once! Especially your first November tax bill that’s due just before the busy holiday season begins.

If you have any questions about the basics of CA property taxes, feel free to reach out to me anytime! I’m happy to answer any questions you may have when it comes to property taxes or anything else related to purchasing a home in CA.   

Stay tuned for next week where I will cover CA Special Taxes, also known as Mello-Roos Taxes.