One of the questions prospective home buyers often ask is “How much will my property taxes be?”
This amount is determined by the County Tax Assessor whose responsibility is to ensure that properties within the county are properly valued. At the time of purchase a form called a “Preliminary Change of Ownership” is completed and submitted to the County along with the Grant Deed, the document which transfers title from the seller to the buyer. This form provides the Assessor with information about the property so that the property can be property assessed.
When helping our clients budget for taxes we recommend that they allow for 1.25% of the purchase price of their new home. This amount is generally sufficient to pay the property taxes plus certain taxes approved by the community such as school parcel taxes.
There are many laws regulating property taxes. The most well-known is Proposition 13, The People’s Initiative to Limit Property Taxation, which was passed by the California tax payers in 1978. The initiative limits the maximum real estate tax to 1% of the cash value of the property and restricts the amount by which property taxes can increase to a maximum of 2% per year until the property is sold again or any new construction is completed, at which the property must be reassessed.
When working with our clients helping them estimate the amount of cash they will need in order to close the escrow we often discuss the timing of property tax payments which can be confusing. Property taxes are prorated between the sellers and the buyers, i.e. the sellers pay for taxes accrued prior to the close of escrow, and the buyers pay the future taxes due.
The County fiscal year commences on July 1 and ends on June 30. There are two installments of property taxes. The first payment representing the period from July 1 through December 31 is due on November 1, delinquent if not postmarked by December 10. The second payment covering the time period from January 1 through June 30 is due on February 1 and delinquent if not postmarked by April 10.