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Supplemental Property Taxes— Explained! | The Real Estate Jedi™ | San Diego Real Estate

If you are buying a property in California
for MORE than it last sold for, chances are, you’ll be receiving a “Supplemental Property
Tax” bill or two in the mail in the months following the transaction. Let’s talk about
these Supplemental Taxes! First, in order to understand Supplemental
Property Taxes, you’ll need to understand the California property tax system as well
as Proposition 13. In California, the way the property tax system
is set up, is that when a property is SOLD, its assessed value for property taxation purposes
is re-adjusted to the sales price of the property. Now since the passing of Prop Thirteen, from
the date of the sale forward, the MAXIMUM annual increase in the assessed value is limited
to TWO percent per year. For example, if a property sold in January
of Two-Thousand Twenty for five-hundred thousand dollars, then the maximum allowable assessed
value in Two-Thousand Twenty-One would be five-hundred and ten thousand dollars, and
so on. So if the housing appreciation rate is FIVE percent annually for the next five
years, the assessed value is still limited to only increasing two percent per year. So for example, let’s say you buy a property
for five-hundred thousand dollars, and the assessed value at the time of the sale was
four-hundred thousand dollars. So once you close escrow, the property will be re-assessed
at the sales price of five-hundred thousand dollars. Now to determine the Supplemental Assessment
Value (that is, the value difference on which your supplemental taxes will be based), The
county assessor will subtract the property’s prior assessed value from its newly assessed
value, and the difference between the two is the NET SUPPLEMENTAL Value that will be
assessed and applied as a supplemental assessment. Now, understand this: the supplemental assessment
could be either a positive amount, or—let’s say in the case of a reassessment that results
in a value that is less than the prior assessed value—a negative amount. Now the fiscal year runs from July First through
June Thirtieth and the supplemental tax (or refund if the new value is less than the old
one) becomes effective the first day of the month following the sale, and the amount is
pro-rated based on the number of months remaining in the fiscal year. Here’s a table showing
the factor to multiply the supplemental taxes by. If for example, you purchased the property
mentioned above in September for five-hundred thousand dollars and the previously assessed
value was four-hundred thousand dollars, then the supplemental assessment value would be
one-hundred thousand dollars (the increase in value). You would then take this amount
and multiply it by the tax rate for your area. The average tax rate in much of San Diego
is approximately 1.25 percent, so in this case, that would be twelve-hundred and fifty-dollars.
You then take that amount and multiply it by the factor for the number of months remaining.
Since the supplemental tax goes into effect in October (because the sale closed in September),
we would multiply that by .75, giving us a supplemental tax bill of nine-hundred and
thirty dollars. Now if you close between January First and
May Thirty-First, then you will receive TWO supplemental tax bills. Since the new Fiscal
year begins in July, the second supplemental bill accounts for the property’s change
in value for the 12 months of the coming fiscal year. Keep in mind that these one-time supplemental
property taxes will not be paid out of your impound account with your lender, so you will
want to be sure to take care of these yourself. Is your head spinning yet? This can be a confusing
topic, I know, so I hope this cleared it up for you. If you’re still confused, give
me a call and I’ll be happy to explain! I’ll see you in the next video!

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