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Here is the situation:

This is in California

My family's home was bought 10 years ago at $1,000,000, they are paying over $10,000 in taxes every year.

The current market value of the home is around $1,500,000

We are building an addition, a separate detached accessory dwelling unit with 600 sf of space.

According to this document, the assessed value of the new construction will be added to the value of the existing property assessment https://www.smcacre.org/how-construction-affects-taxable-value

But what exactly does this mean?

Lets say the new construction is assessed at $200,000, and will create additional $2,000 in taxes every year.

Does this mean the total tax bill would be $10,000+$2,000 = $12,000 ?

Or does this mean the current property will be re-assessed at the current market value and the new construction is added to it? so the total tax bill will be assessed at ($1,500,000 + $200,000)*1% = $17,000 ?

As you can see $5,000 a year is a big deal, especially with a family who is retiring, and will be important when making the decision.

If the new tax bill will be $17,000, does this mean we are better off not doing the construction, or will the property automatically be assessed to $15,000 after a few years anyway?

Also, how does Prop 13 factor into this? Would it prevent our property taxes from going up by more than 2% every year? In this case by no more than $200 each year?

Also, prop 13 refers to 2% of the taxable amount or 2% of the market value? In other words, are we talking about yearly property tax increase of %1 of the 2% which = $200, or 2% of the market value which is $20,000?

Thanks,

  • This is the important paragraph: "Maintenance items generally do not result in re-assessment except when the Assessor determines that a combination of maintenance items make the structure partially equivalent to new, or wholly equivalent to new. In those instances, a portion of the existing improvement value is retained, and a portion is enrolled at market value. Because every case is different, it is impossible to tell in advance how much taxable value will change due to rehabilitation. This determination is generally made by comparing renovated to non-renovated properties". – RonJohn May 15 at 19:37
  • So the construction is nowhere near the main building of the property. At least 16 feet away from it. Does this mean the main building will not be "equivalent to new" or otherwise will not be re-assessed? – Mich May 15 at 19:51
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    I wouldn't expect it to, but I live half way across the country. Better to directly ask your county's assessor. – RonJohn May 15 at 20:28
  • Why are you building the addition in the first place? Answering that question will go a long way towards deciding if the increase in the tax bill is worth it. – chepner May 16 at 12:40

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