How can you avoid a property tax reassessment in California?
In California, Proposition 13 gives homeowners the benefit of having their property tax increases capped at 2%. Given the rapid rise in California property values, long-term homeowners often pay taxes well under the market rate for their properties. However, there are a number of situations that could trigger a property tax base reassessment.
What triggers a property tax reassessment in California?
There are two main scenarios that trigger a reassessment of property tax base to market value:
- Change in ownership, e.g. a purchase
- Friends or family transfer that is not to a child for a primary residence. This includes gifts, inheritances, or addition or deletion of an owner
Can I avoid reassessment with exclusions?
The likely answer is no. There are situations where you can be excluded from reassessment. However, these are not common situations:
- Transfer from parent to child or change in primary residence if you are over 55 or disabled (read more details about Proposition 19)
- Transfers between spouses or domestic partners (e.g. via death, divorce, or in and out of a trust)
- Into or out of a legal entity (e.g. an LLC) provided the proportional ownership does not change
- The substitution of a trustee of a trust or mortgage
- Creation of a tenancy in common
What about new construction, additions, remodels or repairs?
Each of these situations are handled slightly differently, depending on the extent of work being done on your property.
Under California law, repairs or basic remodeling work are generally not considered subject to reassessment (e.g. fixing a roof, carpeting, cabinets, windows, or countertops), assuming no new square footage or fixtures are added.
However, new construction is assessable and can increase your property tax base. A remodel could be considered 'substantially equivalent' to new construction if it increases the usable life of a building (e.g. changes to the plumbing system, electrical system, or foundation). Assessable new construction may be defined as any of the following:
- New structures or new square footage
- New items added to existing structures (e.g. bathroom fixtures, fireplaces, central heating/air conditioning, electrical upgrades, patios)
- Physical alterations resulting in a change in use
- Rehabilitation, renovation, or modernization that converts an improvement to the substantial equivalent of a new improvement
- Land development
If work is done on a property that falls into new construction, only the new construction will be assessed and added to your property tax base; the entire property would not be reassessed.
There are some exclusions to triggering an assessment on new construction, including seismic retrofits, solar panel installations, or rebuilding after a disaster.
If you are considering having work done on your property and are unsure how it will be treated from a tax standpoint, it is highly recommended to consult with a lawyer to discuss your specific situation.
How else can I lower my property taxes?
Avoiding reassessment is important to maintaining a low property tax base. However there are other overlooked ways to reduce your property taxes:
- Exemptions: Most California homeowners are eligible for property tax exemptions that allow you to lower your taxes. California property tax exemptions include the Homeowner's Exemption, Senior Exemption, and Veteran's Exemption. This means if you live in the unit that you own, are over 65, or are a disabled veteran, then you most likely qualify for property tax exemptions in California.
Use Parcel to see if you qualify for any exemptions and automatically file your exemption paperwork with your county assessor's office.
- Contesting your property value: Another avenue to explore is contesting your property value with the county. In most counties, this involves meeting with a panel of judges from your county assessor's office and bringing market comps to justify why you believe your property is not correctly assessed. By demonstrating that your property has been overvalued, you can secure a lower property value, subsequently resulting in a reduced tax bill.
Questions? We're here to help. Sign up for a free 15-minute consultation with one of our property tax specialists to help you lower your property taxes in California.
