California Property Taxes Question

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
cbr shadow
Posts: 448
Joined: Wed Jul 10, 2013 2:12 pm

California Property Taxes Question

Post by cbr shadow »

My wife and I are thinking of buying a house in San Diego in 2022. I understand that in California you're taxed on the purchase price. I also understand that your assessment can go up by 2% annually as long as you own the property.

We're looking at houses around the $1M range. I noticed in the areas we're looking at you can get a property that needs a lot of work ($800k) or a nicer property that is fully finished inside and out ($1.1M). In this case would it make sense to buy a fixer-upper and get locked into a low property tax rate, then renovate to make it what we want? Does this effectively lower my rate for many years to come? I'm guessing they've thought of this and reassess your assessment after any major permitted work on the house.

Any clarity would be much appreciated. I just want to be sure we're being smart since this is a ton of money.

Thanks!
Dyloot
Posts: 328
Joined: Mon Oct 14, 2013 8:04 am

Re: California Property Taxes Question

Post by Dyloot »

cbr shadow wrote: Sun Sep 19, 2021 7:41 pm My wife and I are thinking of buying a house in San Diego in 2022. I understand that in California you're taxed on the purchase price. I also understand that your assessment can go up by 2% annually as long as you own the property.

We're looking at houses around the $1M range. I noticed in the areas we're looking at you can get a property that needs a lot of work ($800k) or a nicer property that is fully finished inside and out ($1.1M). In this case would it make sense to buy a fixer-upper and get locked into a low property tax rate, then renovate to make it what we want? Does this effectively lower my rate for many years to come? I'm guessing they've thought of this and reassess your assessment after any major permitted work on the house.

Any clarity would be much appreciated. I just want to be sure we're being smart since this is a ton of money.

Thanks!
I believe you’re taxed for the initial assessed value, and Prop 13 dictates the annual increase from there. I understand that to be 1% per year. You will also have to pay district property taxes for whatever is existing in that area (bonds for schools, etc).
User avatar
HueyLD
Posts: 9789
Joined: Mon Jan 14, 2008 9:30 am

Re: California Property Taxes Question

Post by HueyLD »

A friend in California provided the following answers to your questions:

https://arcc.sdcounty.ca.gov/Pages/reassessments.aspx

A: No. If the building permit is for repair, replacement or maintenance, the value of the property will not be increased for tax purposes. However, if a bath, kitchen, or entire house is completely remodeled, the value will be added to the current assessment. ​

A: No. Only the value added of the new construction will increase the current assessment. For example, if you build a family room, only the value added of the new construction will be added to your current assessment. The existing home will not be reassessed for tax purposes. ​”
mervinj7
Posts: 2496
Joined: Thu Mar 27, 2014 3:10 pm

Re: California Property Taxes Question

Post by mervinj7 »

cbr shadow wrote: Sun Sep 19, 2021 7:41 pm My wife and I are thinking of buying a house in San Diego in 2022. I understand that in California you're taxed on the purchase price. I also understand that your assessment can go up by 2% annually as long as you own the property.

We're looking at houses around the $1M range. I noticed in the areas we're looking at you can get a property that needs a lot of work ($800k) or a nicer property that is fully finished inside and out ($1.1M). In this case would it make sense to buy a fixer-upper and get locked into a low property tax rate, then renovate to make it what we want? Does this effectively lower my rate for many years to come? I'm guessing they've thought of this and reassess your assessment after any major permitted work on the house.

Any clarity would be much appreciated. I just want to be sure we're being smart since this is a ton of money.

Thanks!
It's a very tricky question. At least in my limited experience, most cosmetic remodeling did NOT trigger a reassessment. However, if you add any square footage or expand bathrooms or kitchens, it may trigger one but only for the portion added.
Thus, it's entirely possible to spend $800k on a property, spend $300k to renovate it, but still be assessed less than the $1.1M you just spend in total. In my friends case, they spend over $500k for their remodel but their assessment only increased $200k. YMMV.

https://www.sccassessor.org/index.php/p ... ing-repair
freight_train
Posts: 72
Joined: Sat Feb 08, 2020 10:55 am

Re: California Property Taxes Question

Post by freight_train »

Agree with the other responses. You're probably looking at around 1.25% including additional assessments for schools and other local needs. In my area we have one for the local community college and one for the school district. I have heard, though not tested, that improvements get added on but don't trigger a full reassessment of the whole property.
rage_phish
Posts: 772
Joined: Thu Jan 31, 2019 3:27 pm

Re: California Property Taxes Question

Post by rage_phish »

We bought in April and are doing a large remodel

In my anecdotal research it seemed to vary wildly as you who saw increases and who didn’t in regards to taxes after a remodel
DavidW
Posts: 145
Joined: Wed Jan 24, 2018 3:14 pm

Re: California Property Taxes Question

Post by DavidW »

I am not sure how prevalent this is in SD but I heard that it is very difficult to find contractors at this time. You probably know that once the work starts, they will find other things to fix....

The property tax bill includes other costs that are added on top of the 1% purchase price. You may want to ask for a copy of the former property tax bill to see what else is included.
DavidW
Posts: 145
Joined: Wed Jan 24, 2018 3:14 pm

Re: California Property Taxes Question

Post by DavidW »

Sorry, one other thing. Some insurance companies are either not insuring homes or increasing the premiums by 2-5x in certain high-risk areas (fires). You may want to check that also.
User avatar
celia
Posts: 16774
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: California Property Taxes Question

Post by celia »

Dyloot wrote: Sun Sep 19, 2021 8:31 pm I believe you’re taxed for the initial assessed value, and Prop 13 dictates the annual increase from there. I understand that to be 1% per year. You will also have to pay district property taxes for whatever is existing in that area (bonds for schools, etc).
Prop 13 says the annual increase can be UP TO 2% each year. Schools, county, and city expenses are covered by the base tax amount. But voter indebtedness is also be added to the property tax, such as when voters pass a local proposition to have a higher city tax or pass bonds for school construction/upgrades (including public colleges). The problem with voter indebtedness is that many renters vote "yes" as they see it as a free benefit they won't have to pay for. Then they don't understand why their rent increases (if not in a rent-controlled area). So even though prop 13 passed over 30 years ago, we're still paying for every bond that passed in the last 30 years (ie, until the bond is paid off).
Dyloot
Posts: 328
Joined: Mon Oct 14, 2013 8:04 am

Re: California Property Taxes Question

Post by Dyloot »

celia wrote: Sun Sep 19, 2021 11:54 pm
Dyloot wrote: Sun Sep 19, 2021 8:31 pm I believe you’re taxed for the initial assessed value, and Prop 13 dictates the annual increase from there. I understand that to be 1% per year. You will also have to pay district property taxes for whatever is existing in that area (bonds for schools, etc).
Prop 13 says the annual increase can be UP TO 2% each year. Schools, county, and city expenses are covered by the base tax amount. But voter indebtedness is also be added to the property tax, such as when voters pass a local proposition to have a higher city tax or pass bonds for school construction/upgrades (including public colleges). The problem with voter indebtedness is that many renters vote "yes" as they see it as a free benefit they won't have to pay for. Then they don't understand why their rent increases (if not in a rent-controlled area). So even though prop 13 passed over 30 years ago, we're still paying for every bond that passed in the last 30 years (ie, until the bond is paid off).
Ah, so 1% of the assessed value, and that value may increase up to 2% per year. Thanks for the correction.
phxjcc
Posts: 1329
Joined: Thu Aug 23, 2018 3:47 pm

Re: California Property Taxes Question

Post by phxjcc »

cbr shadow wrote: Sun Sep 19, 2021 7:41 pm My wife and I are thinking of buying a house in San Diego in 2022. I understand that in California you're taxed on the purchase price. I also understand that your assessment can go up by 2% annually as long as you own the property.

We're looking at houses around the $1M range. I noticed in the areas we're looking at you can get a property that needs a lot of work ($800k) or a nicer property that is fully finished inside and out ($1.1M). In this case would it make sense to buy a fixer-upper and get locked into a low property tax rate, then renovate to make it what we want? Does this effectively lower my rate for many years to come? I'm guessing they've thought of this and reassess your assessment after any major permitted work on the house.

Any clarity would be much appreciated. I just want to be sure we're being smart since this is a ton of money.

Thanks!
Ok, buyer and fixer here....
My experience is that if you do not pull permits, then no reassessment is done.
Doing a six figure renovation (no structural changes): no re-assessment.
Doing a bigger renovation which included a lot scrape, but no changes to the shell sq footage: assessment was increase by the amount of concrete decking added. (1% of the cost of the deck)
Doing a "three wall" tear down, no reassessment.
(Shocked, but at the time, those were the rules...that is why you see so many odd looking houses in Santa Monica! )

Caveats: some cities require permits for EVERYTHING.
E.g., want to replace that tile counter top with granite/quartz?
requires a permit. And yes, they can and WILL red flag your job if you don't. Happned down the block.
So, there is room for them to come back and say they want another $130/yr for you new kitchen counter.

I will not editorialize for fear of being mod'd.

Go into the assessor' office IN PERSON and ask.
..except, it also varies by city.

Never done work in SD county though, so all of this is probably worth exactly what you paid for it.
:beer
User avatar
celia
Posts: 16774
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: California Property Taxes Question

Post by celia »

phxjcc wrote: Mon Sep 20, 2021 1:08 am Doing a "three wall" tear down, no reassessment.
I’m pretty sure this is no longer in effect. Leaving only one wall in place is now a head start on a new build (and re-assessment) rather than a remodel.
Go into the assessor' office IN PERSON and ask.
..except, it also varies by city.
I suspect most assessor’s offices are still closed. Ours is only working by phone and e-mail.
Carefreeap
Posts: 3899
Joined: Tue Jan 13, 2015 6:36 pm
Location: SF Bay Area

Re: California Property Taxes Question

Post by Carefreeap »

rage_phish wrote: Sun Sep 19, 2021 9:01 pm We bought in April and are doing a large remodel

In my anecdotal research it seemed to vary wildly as you who saw increases and who didn’t in regards to taxes after a remodel
It does. I think it depends on who gets your file in the assessor's office. We've done four major projects since moving back into the house in 2012; kitchen, bath, landscaping (decks patios) and media room/added shower. The first three no additional assessments despite pulling permits. Fourth project triggered a small reassessment because it was a remodel down to the studs but no additional sq.ft. I'm paying an extra $200/yr. I called and spoke to the appraiser and really wanted to go all "Karen" on him because it was so petty. But I backed off. It was a small amount, we could afford it and I had bigger problems with two very difficult aging parents.

You got to go in expecting the worse and hope it turns out better than planned.

These major remodels are A LOT of work and stress. I wouldn't let the property tax tail wag the dog.
Every day I can hike is a good day.
neverpanic
Posts: 1023
Joined: Sun May 10, 2020 12:26 am

Re: California Property Taxes Question

Post by neverpanic »

Carefreeap wrote: Mon Sep 20, 2021 10:56 am It does. I think it depends on who gets your file in the assessor's office. We've done four major projects since moving back into the house in 2012; kitchen, bath, landscaping (decks patios) and media room/added shower. The first three no additional assessments despite pulling permits. Fourth project triggered a small reassessment because it was a remodel down to the studs but no additional sq.ft. I'm paying an extra $200/yr. I called and spoke to the appraiser and really wanted to go all "Karen" on him because it was so petty. But I backed off. It was a small amount, we could afford it and I had bigger problems with two very difficult aging parents.

You got to go in expecting the worse and hope it turns out better than planned.

These major remodels are A LOT of work and stress. I wouldn't let the property tax tail wag the dog.
^This. I fully support being tax-conscious in virtually all things, but property taxes are one of the most affordable parts of California living. Get the house you want.

I did a large renovation a few years ago and some of the work was permitted. Those permits triggered an inquiry from the Assessor's Office. There was a lukewarm increase which didn't go into effect until the next cycle, so everything worked as it should've and I felt I had been treated fairly.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
Post Reply