Embarking on the journey to homeownership is an exhilarating experience, but it comes with its…
If you’re thinking about buying a house in California, it’s important to have a clear understanding of how property taxes are calculated before you make an offer. This will give you an idea of what your financial responsibilities will be in your specific area.
Back in 1978, California voters passed Proposition 13 (Prop 13), which limits the annual increase in property taxes. When you buy a property, the County Tax Assessor determines its assessed value, usually based on the market value at the time of purchase.
Every year after that, the County Tax Assessor adjusts the assessed value using the inflation rate determined by the California Consumer Price Index (CPI). Thanks to Prop 13, this inflation rate cannot exceed two percent. The reassessment of properties only happens when there is a change of ownership or when new construction takes place.
Additionally, according to Prop 13 guidelines, property tax rates are capped at one percent of the assessed value. This rate applies to statewide taxes and does not include any local bonds approved by voters or special assessments related to projects like public safety initiatives, road maintenance, water and sewer infrastructure and so on.
In the state of California, property taxes are calculated using a simple formula. The assessed value of the property is multiplied by the property tax rate and any additional amounts for approved bonds or special assessments.
The average tax rate including approved bonds or special assessments is about 1.25%
Let’s take a closer look at an example;
Imagine Betty Homebuyer who bought her home in California back in 1980 for $200,000. The County Assessor determined that Betty’s assessed value was also $200,000. Consequently, Betty had to pay 1% of $200,000 as her property tax for the first year, amounting to $2,000. Each subsequent year, the base year value was adjusted by the County Tax Assessor based on the Consumer Price Index (CPI), but not exceeding a 2% increase.