Overview

Property taxes are an essential source of revenue for local governments in California. For many taxpayers, they constitute the largest tax bill they will receive each year. They help fund fire departments, police departments, and educational institutions among other government programs and organizations.

The current system for determining property tax assessments and payment schedules was set forth by California Proposition 13 in 1978. It set a framework for the variety of taxes that appear on your tax bill: the 1 percent tax and debt services tax as well as direct charges and special assessments.

The amount of property taxes you pay corresponds to your home’s value, and your home’s value is determined by your county’s assessor’s office. This department assesses a property when it changes hands. This could be at the time of sale, refinance or transfer of title to a family member or loved one. When construction adds value to your home, those additions can be assessed as well. Increases in assessed value occur annually on January 1st and payments on your property tax bill are due in two installments on December 10th and April 10th.

How are property taxes assessed?

It’s hard to talk about California property taxes without talking about California Proposition 13. Prop 13 was a landmark piece of legislation that fundamentally changed how property taxes are assessed and collected in California. Passed in 1978, it stipulates that annual increases in assessed value are to be tied to the California Consumer Price Index (CPI), which tracks inflation, and are capped at 2 percent per year. This means that even if inflation is over 2 percent in a given year, the assessed value of your home can only increase by 2 percent.

That is unless…

Making improvements or adding new construction to your home is an example of how your assessed value could increase by more than 2 percent. In this case they would add the assessed value of the improvements to the existing assessed value of your home.

The SF County Assessor-Recorder Office calculates the value of property using one of three methods:

1. The Cost Approach is based on the total of the current costs necessary to replace or rebuild the home.
2. The Income Approach is based on the income a property produces and is the preferred method for appraising income producing properties like apartments, hotels and business properties.
3. The Market Approach compares the property to like-kind properties in the same area that have recently sold and is the preferred method of calculating value for single family homes and condominiums.

When you purchase property in San Francisco the County Assessor Office will assess the value of your home for the purpose of determining your property tax bill. Note: your property taxes are calculated using the assessed value and not the purchase price. This means that if you purchase a home for $400,000 and the assessor values the home at $425,000 you will pay taxes based on that higher amount. There is a process for appealing an assessed value if you believe it to be incorrect, but this is an uncommon practice and could potentially result in an even-higher assessed value.

Calculating Your Tax Bill

Your property tax bill is calculated Ad Velorum, meaning it’s tied to the assessed value of your home. Property taxes are calculated by multiplying the assessed value by the standard California tax rate of 1% plus the debt services rate, which is roughly 0.18% for the county of San Francisco for the property tax year 2022 – 2023. So if you own a $400,000 home you would multiply the value of the home by 1.18% to calculate the total property tax liability for the year, roughly $4,720.

Homeowner’s are eligible for a property tax exemption of $7,000 each year. To take advantage of this, you will subtract $7,000 from the assessed value of your home before multiplying by the tax rate. For San Francisco property owners this usually equates to a tax saving of around $80 to $100 per year. For more information on this, consult a tax professional.

Important Dates

Prop 13 also informs how and when property taxes are collected. The assessed value of your home is determined using its value as of January 1st preceding each property tax year. The property tax year begins on July 1st and ends on June 30th. For San Francisco property owners you will receive a letter from the SF County Assessor’s Office called the Notice of Assessed Value in July. You can use that information to estimate your property taxes early. In October you will receive a bill from the Treasurer and Tax Collector’s Office. This bill is for the current property tax year and is due in two installments. The first installment is due on November 1st and is delinquent at 5:00 PM on December 10th. The second installment is due on February 1st and is considered delinquent after 5:00 PM on April 10th. Any delinquent payments can be subject to penalties, so it’s important to pay your property tax bill on time.

Supplemental Tax Bills

A common question from new homeowners is, “What is a supplemental tax?” The Supplemental Real Property Tax Law was signed into the California legal code in 1983 as part of an ambitious effort to aid California’s schools.

A supplemental tax is levied when a property changes ownership and a supplemental assessment takes place. The difference between the assessed value of a property before and after a sale is the supplemental assessment. Supplemental tax is calculated by multiplying the supplemental assessment by the tax rate (around 1.2 percent in California) and prorating it by the number of days the new owner owns the property in a given property tax year.

By assessing an updated value to a property on the day it changes hands, increased revenue is generated to fund local governments.

Conclusion

California property taxes are a significant source of funding for local government, and in some cases, it can be the largest tax bill a property owner pays all year. Property taxes correspond to the assessed value of your property, which may differ from the purchase price. The fiscal property tax year runs from July 1st to June 30th and property values are assessed on January 1st preceding each tax year. If you’d like more information about California property taxes, check out the links I’ve provided below.

*This article is intended as an introductory overview of property taxes in California and is in no way to be considered legal or financial advice. Please consult an attorney or Certified Public Accountant for legal and/or tax advice.

Resources for further reading:

“Real Property Assessments” – San Francisco Office of the Assessor-Recorder https://www.sfassessor.org/property-information/homeowners/real-property-assessments

“Understanding California Property Taxes” – Legislative Analyst’s Office https://lao.ca.gov/reports/2012/tax/property-tax-primer-112912.aspx

“Understanding Supplemental Property Taxes” – California Land Title Association https://www.clta.org/page/Consumer13

“How are Property Taxes Calculated in California?” – SF Gate https://homeguides.sfgate.com/property-taxes-calculated-california-57530.html