Property Reassessment: How to plan for property taxes after additions or improvements
The building boom is still going strong in the Bay Area, and one question that comes up often is “What will this project cost me in increased property taxes?” Here are some things to consider and how to get the information you will need for budgeting purposes.
“New construction” is taxable under California’s Proposition 13. The bad news is that CA property tax law defines “new construction” as not only additions. Basically, any physical alteration, rehabilitation, renovation or modernization that converts a portion of the property to “like-new” condition is considered a taxable “improvement”. The definition is so broad that most kinds of construction will trigger a property tax reassessment. (There are a few exceptions that are described in detail at the hyperlink below.)
Normal maintenance or repairs, like new roofs, or new kitchen cabinets, or simple replacement of an existing fixture like an air conditioner, will not cause a reassessment; unless the repair or replacement is considered an “improvement”.
The good news is that an addition or other new construction does not cause your entire property to be reappraised. It only generates a supplemental assessment, based on the “incremental value added to the existing property”. This supplemental assessment is based on the estimated market value of the new construction. (Sorry do-it-yourselfers, the market value is not necessarily the same as the “cost” of the construction.)
Note that “any substantial physical alteration of land which constitutes a major rehabilitation of the land or changes the manner in which it is used,” such as rezoning the property, could cause the whole property to be reassessed. Also, if you tear down an existing home and then build a new one (even if you left one wall standing), it will cause a reassessment of the entire home.
There are some grey areas about what is considered an “improvement” by the County tax assessor. You have the right to appeal the assessment.
The California State Board of Equalization has prepared an excellent document that gives further information about this topic. It includes frequently asked questions and answers. As noted above, it includes details about what kinds of construction are exempt from property tax reassessment. https://www.boe.ca.gov/proptaxes/newconstructionproperty.htm
It is important to know what your increased ongoing costs will be after completing your construction project, so we recommend reading the BOE document before you start. If you really need to know what your reassessment would be, you can contact your local County Tax Assessor to review your plans and give his/her best estimate of your property tax increase. As always, we hope that this additional information is helpful to you in decision-making for your architectural project.
Until next time, we are Designing For Your Reality.
By Lorianna Kastrop, Vice President, The Kastrop Group, Inc. Architects
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