July 06, 2021
Proposition 13 overhauled California property taxes and spurred tax legislation across the Western United States in the late 1970s. In 1978, property taxes had increased for many years and spurred Proposition 13, which changed the calculation of property taxes and imposed limitations on tax increases. Proposition 14.
Since most of our clients acquire assets in California, this article explains how to calculate property taxes in California when underwriting a deal and how the Newmark Property Tax Group can help appeal property taxes.
Before 1978, California property values were calculated frequently with, at most, a five-year gap between reassessments. The frequency of reassessments meant that assessed values remained near market value. Proposition 13 overhauled the entire system from a market value system to an acquisition value-based system. Under Proposition 13, the assessed value is the sale price of the most recent transaction, and the assessed value can increase by a maximum of two percent per year after acquisition, barring new construction or a subsequent change in ownership.
The following are the requirements imposed by Proposition 13 active as of 2021:
1. Base property taxes (Ad-Valorem) in California are 1% of the assessed value
2. Property Assessments cannot increase more than 2% per year
3. Properties are reassessed to market value upon sale or upon the completion of new construction
4. Additional direct assessments charges (Non-Ad-Valorem) from cities, counties and special districts require a two-thirds public vote and typically increase at a rate of 3% to 5% annually.
For example, here is a hypothetical property tax calculation for an office building following the rules of Proposition 13. Suppose someone purchases an office building for ten million dollars. The table below is the property tax calculation for the first year of ownership.
|Property Tax--Ad Valorem (1% of Assessed Value)||$100,000|
|Add Direct Assessments--Non-Ad-Valorem (Voter Approved)||$5,000|
|Total Property Taxes||$105,000
The table below shows the estimated property taxes for five years of ownership.
|Year 1||Year 2||Year 3||Year 4||Year 5|
The best candidates for property tax appeals in California are properties that have recently changed ownership or have recently finished construction. Property owners can appeal property taxes by filing an application with the clerk of the Board of Supervisors at the County by the appeal deadline listed in the table below.
The first step in the appeals process is an administrative hearing in front of the County Board of Superiors. At this stage, property owners may choose to be represented by a tax professional or a lawyer since the property owner has the burden of proving the assessor improperly valued the property. If the Board denies the property owner, further action in the courts is possible under certain circumstances. The Newmark Property Tax Group specializes in appealing property taxes, so reach out with any questions.
|Appeal Deadline||County in California|
|September 15th||Alameda, Alpine, Inyo, Kings, Placer, San Francisco, San Luis Obispo, Santa Clara, Sierra, and Ventura Counties|
|November 30th||All other counties
For more information about property taxes in the Western United States, review our other articles like the Step-by-Step Guide: How to Calculate Nevada Property Taxes.
Disclaimer: The information contained in this article is provided for general informational purposes only, and should not be considered or treated as legal or tax advice and represents only general information that may or may not be applicable to the reader’s particular situation. The reader should consult its own attorney and/or tax advisor if specific guidance, information, or advise is required.