Most people focus on the income taxes they pay to their federal and state governments, spending countless hours preparing returns. But for many people, property taxes make up a sizable portion of their overall tax bill. For the nearly 40 million residents of California, real estate and land taxes are just a part of the taxes the state charges. Although only homeowners pay the tax directly, renters can definitely see the impact of California state property tax on their rental payments. Let's take a closer look at the state property tax system in the U.S.'s most populous state.
How California state property taxes work
California uses both state and local governments in its property tax system. The California State Board of Equalization acts in an oversight capacity to ensure county tax assessors follow appropriate tax laws and regulations. The state also provides materials and guidance for county tax officials to use in assessing property and determining tax.
Within each county, the assessor handles determining who owns property, sets a taxable value for the property, applies any legal exemptions that are available, and then completes a tax roll showing all of those assessed values. The county auditor or controller then computes the amount of taxes due. It's then the county tax collector's job to send a bill to homeowners and collect amounts owed.
What's the property tax rate in California?
In California, counties collect both state and local property tax. The state rate is 1% of the assessed value. Additional assessments in certain locations apply when voters approve them, with typical uses involving schools, water and sewer provisions, parks, and transportation systems. In total, California homeowners typically end up paying between 1.25% and 1.5% of assessed value each year in property taxes.
Property taxes are due in two equal installments, corresponding to the halves of the state's fiscal year. The first half applies to the period from July 1 to Dec. 31, with the payment due on Nov. 1. The second half applies to the Jan. 1 to June 30 period and is due on March 1. Payments are delinquent if not received by Dec. 10 or April 10, respectively, with a 10% penalty applying after those dates.
Limits on how much assessed value can increase
One key California tax provision puts a limit on how much any homeowner's assessed value for property tax purposes can increase from year to year. Proposition 13 imposes a 2% maximum increase on assessed value. Note that the amount of tax you owe can still rise by more than 2% if the local tax rate in your area rises. Moreover, if you make new construction on your property, then the improvements can raise your assessed value beyond the 2% limit. This provision also applies only to specific homeowners. As a result, when someone sells a home, the new owner can often see a big jump in assessed value and therefore pay higher property taxes, because the Proposition 13 limit artificially deflated the true value of the home.
There are special provisions that can also result in lower tax bills. For instance, those who are 55 or older when they sell a property are able to transfer the tax benefit that Proposition 13 gives them to a replacement property if its current market value is no greater than that of the original property. Repurchases must be made within two years, and you have to use the property as a principal residence. Disabled persons are also entitled to a similar provision. These provisions apply to moves within a single county, and some counties have made agreements to allow residents of other counties to take advantage of the provisions as well. Finally, transfers between parents and children, or grandparents and grandchildren are allowed without an increase in assessment.
Finally, you're entitled to file an assessment appeal if you believe the assessed value of the home doesn't reflect its true value. The Board of Equalization recommends going to your county tax assessor to discuss the dispute first, but if no resolution is reached, an appeals process is available that can take you before a county appeals board or to a local court.
For more information on California property taxes, the Board of Equalization website can be helpful. In particular, a list of frequently asked questions deals with common inquiries California property owners make.
Property taxes make up a substantial portion of the tax burden California homeowners have to pay. By knowing your rights, you can plan for your taxes and make sure you don't end up with a big surprise when you get your property tax bill.