How Are Property Taxes Calculated in California?

Californians pay real estate property taxes based on up to three different components. Homeowners pay a tax of 1 percent of the assessed value of their property. This tax rate applies to all real property in California. Depending on the jurisdiction, property owners might also have to pay voter-approved special taxes and assessments. A third component is a tax for voter-approved debt issues for specific areas and municipalities.

One Percent Property Tax

This general property tax applies to all cities, towns, counties and rural areas in California. The local tax assessor sets the value of the property being taxed. Increases in property assessments and, therefore, taxes cannot be more than 2 percent larger than the previous year's tax bill. The assessed value includes both land and improvements, including your home, garage and any free-standing outbuildings, such as sheds and cabanas.

Special Taxes

California calls these Direct/Special Assessments. Per California Proposition 218, these special taxes need a majority of property owners to vote "yes" on the proposal. Each owner then votes on the dollar value of their special assessment. The municipality can impose certain fees, such as sewer and water usage, along with refuse collection, without voter approval. However, these special taxes cannot exceed the cost of delivering these services.

Voter Approved Indebtedness

These additional property taxes are charged for monies needed to pay interest and principal of municipal bonds issued after receiving voter approval. There is no way to predict the amount of these taxes, as they are dependent on the cost of the projects, repairs or improvements to be made. Therefore, the amount of individual real estate taxes for this component depends on the amount of the approved bond and the number of property owners within the municipality.

Homeowner's Exemptions

Taxpayers who own and occupy real estate can receive a Homeowner's Exemption of up to $7,000 off the home's assessed value. Should you file for this exemption once and continue to own and occupy the property, you need not file for it every year. As long as you remain the property owner and occupy the home as your primary residence, you will receive the exemption annually.

Tax Base and Home Sales

Each time a home is sold, the new 1 percent property tax will be based on the selling price. Since there is a new owner, the 2 percent maximum increase from the prior year does not apply. Should the buyer pay significantly more than the prior assessment, the 1 percent property tax amount could greatly increase from the prior year's level. For example, a home assessed at $350,000 would have a tax cost of $3,500. If the home is sold for $450,000 in the next year, the 1 percent tax increases to $4,500, considerably more than the 2 percent increase maximum.

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