How Is Property Tax Calculated in California?
Updated: Dec 7, 2022
While California has a lower property tax rate than the majority of other states, it is still the largest tax payment that most residents of the state will make in a given year. Essentially, property tax in California is about 1% of a property’s assessed value, which is paid twice per year. However, this is a great simplification, and there are many more regulations and specific rules that apply.
Because of the importance of property taxes for your personal finances, as well as the budget of your city and county, it’s important to fully understand the process. In this article, we’ll look at everything you need to know about California property taxes to make sure that you fulfill your obligations, don’t overpay, and get the value you deserve out of your property.
Property Tax Basics
California is home to some of the most desirable, lucrative, and beautiful real estate on the planet. With its powerhouse economy and a vast supply of jobs, California has for decades represented the best parts of the American dream, a land of opportunity where anyone can build a better life.
While the cost of living is high in California, property tax rates are reasonable, coming in at around the 16th lowest out of all the states. This is another great reason to invest in real estate in California, but it’s still important to make sure that all steps are followed properly.
It’s easy to forget about property taxes and end up overdue. In California, being late or delinquent on your property taxes leads to a penalty of 10%, which can create a major financial issue for many people. Even worse, remaining late can lead to foreclosure or liens placed on the property. Always set aside a certain amount per month so that you will be able to pay your property tax on time.
Usually, property tax is paid twice per year in California, once in the Spring and once in the Fall. The fiscal year in California is broken up into two parts, January 1st to June 30th, and July 1st to December 31st. For the first half of the year, your property tax will be due by March 1st and considered delinquent by April 10th, and for the second half, it is due by November 1st and delinquent after December 10th.
Calculating Property Taxes
As opposed to other taxes, property taxes are called “ad valorem” taxes, or “according to value”. This means that they are measured and adjusted proportionally to the value of the property, and someone with a huge house will owe more than someone with a small house.
Many variables must be considered, and it is a process that involves a lot of computation and work. A simple layout of the procedure to calculate property taxes in California is as follows:
The county assessor evaluates and determines ownership of properties.
They determine the taxable value of the property.
Exemptions like the homeowner's exemption in the California Constitution or other factors are considered.
The assessor produces a tax roll, an official breakdown of all properties within the jurisdiction, which shows their assessed values.
The total amount of taxes per property is then calculated by the county auditor or controller.
In California, property taxes are based on the price the property sold for, considered to be the assessed value. Every year after, they will be increased proportionally to inflation in the state, which is measured by the California Consumer Price Index. Fortunately, there is a 2% per year limit on this rise.
Why Property Taxes Matter
Unlike most of the other tax money we pay, property taxes all remain within the county they are paid in. That means that the money you pay goes directly towards benefiting you and those who live around you. Whether it's better schools, better public services, or better roads, property taxes benefit us all, and paying them is simply part of living in a functioning and healthy society.
However, these projects and developments can lead to a higher property tax bill or additional taxes. In California, these are called “Mello-Roos” taxes, which are voted on and used to fund specific projects or infrastructure in the county. Generally, it’s a smart rule of thumb to multiply the property’s purchase price by 1.25%, which will cover the property tax and any additional Mellos-Roos taxes or additional local taxes.
It’s always smart to take advantage of any help you can get when it comes to taxes. Proposition 60 and Proposition 13 in California are both geared towards helping property owners pay these taxes, and there are ways to get tax credits for expenses or other financial issues you may have.
However, property taxes are still a major issue for many people. If you wait too long to pay them, you can be dealing with liens, foreclosures, and penalty tax bills that can seriously affect your life. Before it gets to this point, you can contact organizations and companies that help with financial services or loans, which will keep you and your family happy, safe, healthy, and living in the home that you love.