Property Tax in California: Everything You Must Know As a Landlord or Property Manager

In the Golden State, where the sun shines bright and properties often come with breathtaking views, understanding the ins and outs of property tax is paramount for any investor, landlord, property manager, or property management business.

Whether you own a sleek downtown condo in Los Angeles or a picturesque vineyard in Napa Valley, or if you're considering your first investment property near the scenic beaches of San Diego, property taxes are a significant part of your financial picture.

But how many times do you actually need to pay this tax per year?

How is the amount calculated?

Are there ways to lower these costs legally so that you can maximize your investments?

This comprehensive guide is designed to shed light on California’s property tax system for investors, landlords, and property managers alike.

We’ll walk you through essential dates, rates, calculations, exemptions, key propositions, and what to do if you’re late on a payment—ensuring you're well-prepared to navigate this critical aspect of property ownership in California.

Understanding Different Types of Property Tax Bills in California

We'll start by going over a few of the different property tax bills you can expect to get in California.

There are some others as well, such as unsecured property tax bills, but we'll stick to those related to real estate specifically.

Secured Property Tax Bill

In California, a secured property tax bill refers to property taxes that are assessed based on the value of physical property (real estate) such as land, buildings, or other permanent structures.

These taxes are called "secured" because they are secured by the property itself, meaning that if the taxes are not paid, the property can eventually be seized and sold by the government to recover the unpaid taxes.

Typically, the secured property tax bill is mailed to property owners by the end of October each year.

If you haven’t received your bill, you should contact your local county tax collector’s office. Many counties also provide online platforms where you can view and make payment on your tax bills. While they usually accept cash payments, you can usually pay online or send money in the mail too, such as in San Diego County and Los Angeles County.

Supplemental Tax Bill

Supplemental property tax bills are additional tax bills that property owners may receive as a result of a reassessment of home values.

When a property is purchased or newly constructed, the county assessor is required to reassess the property at its current market value. Typically this is similar to the sales price.

The supplemental tax is calculated based on the difference between the old and new assessed values of the property, prorated based on the number of months remaining in the fiscal year after the change occurred.

If the reassessed value is more than the previous assessed value, the difference between the two amounts is taxed through supplemental property tax bills. Conversely, if the new assessed value is lower, the owner may receive a refund or a reduced bill.

Supplemental tax bills are separate from the regular (secured) property tax bills and can be issued at any time during the year. They're not subject to the standard payment schedule of regular property taxes.

The due date for paying a supplemental property tax bill varies, but it's usually payable in two equal installments of money. The payment schedule for the transaction will be outlined clearly on the bill itself.

Escape Assessment Bill

An escape assessment is in addition to the regular annual tax bill. It's a tax bill that results when the county assessor discovers any of the following:

• The property was not previously assessed when it should have been
• The property was under-assessed
• The property was erroneously exempted

Essentially, the real property “escaped” taxation in a prior year.

This could happen if, for example, a property improvement wasn't reported, or a change in ownership wasn’t noted.

You can appeal an escape assessment if you believe it's incorrect.

How Many Times Do You Pay Property Tax a Year in California?

In California, property taxes are not a once-a-year affair; they're a recurring responsibility that demands attention twice annually:

• First Installment: The first installment of your property tax is due on November 1st and is considered delinquent if not paid by 5 pm on December 10th.
• Second Installment: The second installment is due on February 1st and becomes delinquent if not paid by 5 pm on April 10.

These semi-annual payments are not equal halves; the first installment is generally 55% of the total annual tax bill, and the second installment is typically 45%.

It’s vital for property owners, especially investors and landlords who need to manage their cash flow efficiently, to mark these dates in their calendar and plan accordingly.

Missing a payment or falling behind can lead to penalties.

Consequences of Late Payments

Paying your property taxes on time is crucial for avoiding unnecessary penalties and preserving your financial well-being.

As an investor, landlord, or property manager, understanding the ramifications of late payments is essential.

Here's an outline of the consequences of missing property tax deadlines in California:

• Financial Penalties: Late payments on property taxes in California incur a 10% penalty. Additionally, payments made after the final delinquent date accrue a 1.5% monthly penalty.
• Interest Charges: If taxes remain unpaid for an extended period, interest charges of 1.5% per month are added to the unpaid balance, which can quickly accumulate and create a significant financial burden.
• Tax Liens: If you don’t pay your property taxes, the county can place a tax lien on your property. A tax lien gives the county a legal claim to your property as security for unpaid tax debt.
• Risk of Tax Sale: If taxes remain unpaid for a sufficiently long period (generally five years), the county has the authority to sell the property through a public auction, known as a tax sale, to recover the unpaid taxes.
• Damage to Credit Score: Unpaid property taxes, especially when they lead to a tax lien, can significantly impact your credit score, making future borrowing more difficult and potentially more expensive.
• Additional Costs: Late payments often involve additional costs, such as fees for initiating and releasing a tax lien, which add to the overall debt and can be substantial.

For investors and property managers, late payments can lead to escalating costs that erode profit margins, disrupt long-term investment strategies, and cause issues with a tax collector. It is essential to prioritize property tax payments in your financial planning and budgeting processes.

To avoid these severe consequences, always strive to pay your property taxes on time once you receive your property tax bill. If you’re facing financial hardship, consult with your county tax collector’s office. They may offer payment plans or other forms of relief to help you manage your tax obligations.

How to Pay a Property Tax Bill in California

There are many ways to pay your property tax bill in California. It varies from county to county, so whether you're in San Diego County or Los Angeles County or another area, be sure to double-check.

As an example, Los Angeles County will accept payments in various different formats from a homeowner.

You can pay property tax bills online, send an electronic check, go into the office with cash payments, mail the money, and even use a credit card or debit card. Just keep in mind that if you use a credit or debit card to pay your property tax bills, you will likely incur a transaction fee.

How Much is Property Tax in California?

In California, property tax rates can vary, but they all start with a fundamental baseline and go up with a specified percentage. The Golden State has a standard property tax rate of 1% of the assessed value of the property, plus any voter-approved bonds, fees, and special charges.

For investors, landlords, and property managers, understanding the full scope of your potential property tax liability is crucial. It affects your bottom line, cash flow, and the overall viability of your real estate investment.

Assessed Value

Your property's assessed value is generally established when you buy or newly construct the property.

Thanks to Proposition 13, the maximum amount of this assessed value can increase by only 2% per year, regardless of changes in the market value.

The assessed value is usually the purchase price when the property was bought or newly constructed.

Basic Levy

Every property in California is subject to a basic levy of 1% of its assessed value, as determined by the county assessor.

This assessed value is established when you buy or newly construct a property and is generally based on the purchase price.

Voter-Approved Charges

In addition to the basic levy, properties may be subject to additional taxes to fund specific local services or improvements. These are often decided through local elections with California voters and can vary significantly between counties and municipalities.

Common voter-approves charges include funds for the following:

• School districts
• Community colleges
• Infrastructure projects

How is Property Tax Calculated in California?

Calculating property tax in California involves the aforementioned components: the assessed value of your property, the basic tax rate, and any additional voter-approved charges.

Let's break down each step:

1. Determine the assessed value
2. Apply the basic tax rate
3. Add voter-approved charges and special assessments

Assume you own a property with an assessed value of $600,000. Your basic tax would be $6,000 (1% of $600,000).

If your local voter-approved charges and special assessments total 0.25% of your property’s assessed value, that would add $1,500 to your tax bill (0.25% of $600,000).

Therefore, your total annual property tax would be $7,500 ($6,000 + $1,500).

Make sure to check with your local county assessor’s office for the most accurate and up-to-date information on your property’s assessed value and any additional voter-approved charges that may apply. They are your definitive source for the specifics of your property tax obligations in California.

How Can I Lower My Property Taxes in California?

That brings us to our next point: property taxes in California are a significant expense, but there are legitimate avenues to reduce this burden.

For investors, landlords, and property managers looking to optimize their budgets, here’s how you might be able to lower your property taxes in California.

Appeal Your Property Assessment

If you believe your property’s assessed value is too high, you can file an appeal with your local county assessor’s office.

The appeal process varies by county but generally involves providing evidence that supports your claim for a lower assessment.

Look into Disaster Relief

If your property is damaged or destroyed by a disaster, and the governor declares a state of emergency, you may be eligible for property tax relief.

Consider the Implications of Propositions 60 and 90

Propositions 60 and 90 allow eligible homeowners to transfer the taxable value of their existing home to a new home, under certain conditions, thereby potentially lowering the property tax on the new property.

Investigate Other Exemptions and Tax Relief Programs

There are several other exemptions available, such as the Disabled Veterans' Exemption and the Senior Citizens' Property Tax Postponement. Check with your local assessor’s office to explore all options.

These exemptions can reduce your tax bill, making them key tools for investors, landlords, and property managers.

For investors and landlords with diverse portfolios, it's particularly important to be aware of these exemptions as they may apply to various properties under different use-cases.

Always consult with a professional or your local county assessor’s office to understand the specifics of each exemption and to determine your eligibility. They can guide you through the application process, ensuring that you meet all requirements and deadlines.

Here's a rundown of the most impactful exemptions worth knowing.

Homeowners' Exemption

If the property is your primary residence, you may be eligible for a Homeowners' Exemption, which reduces the property’s taxable assessed value by $7,000.

Propositions 58 and 193 for Family Transfers

These propositions allow parents and grandparents to transfer primary residential properties to their children or grandchildren without triggering a reassessment of the property tax value under certain conditions.

Disabled Veterans' Exemption

Qualified veterans who are blind, disabled, or have lost the use of two or more limbs may be eligible for significant tax savings.

The exemption amount is updated annually and can be found on the State Board of Equalization's website.

Senior Citizens' Property Tax Postponement

This program allows eligible seniors (62 years or older) to defer their current-year property taxes on their primary residence if they meet certain criteria, including income limitations.

Welfare Exemption

Properties used exclusively for religious, hospital, scientific, or charitable purposes, and owned and operated by qualifying non-profit organizations, may be eligible for this exemption.

Historic Property Exemption

Owners of qualified historic properties who enter into a preservation contract with a local government may receive a significant reduction in property taxes in exchange for restoring and maintaining the property.

Important Propositions for Real Estate Investors in California

In California, several voter-approved propositions have significant implications for property owners, affecting how property taxes are assessed and managed.

As an investor, landlord, or property manager, knowing these propositions can empower you to make informed decisions and optimize your tax strategy.

We've touched base on some of these before, but we'll go into them more as well as others in this section.

Here are key propositions that every property owner should understand.

Proposition 13 (1978)

This landmark proposition caps the annual increase of the assessed value of a property at 2%, regardless of changes in market value. It also sets the basic property tax rate at 1% of the assessed value plus voter-approved charges.

Proposition 13 dictates how the assessed value of a property is determined as well:

• Initial Assessment: When a property is purchased or newly constructed, its assessed value is established as the purchase price (or the construction cost).
• Annual Adjustments: After the initial assessment, Proposition 13 limits the annual increase in the assessed value of a property to the lesser of the inflation rate (as measured by the California Consumer Price Index) or 2%.

The California Consumer Price Index plays a critical role in determining the annual adjustment to the assessed value of properties in California, which in turn affects the amount of property tax that owners are required to pay.

It's is a widely used measure for adjusting pensions, wages, and other payments to keep pace with inflation, as well as for making comparisons of living standards over time or between different geographic areas.

Proposition 58 (1986) and Proposition 193 (1996)

These propositions allow parents (Prop 58) and grandparents (Prop 193) to transfer primary residential properties to their children or grandchildren without triggering a reassessment of the property tax value under certain conditions.

Proposition 60 (1986) and Proposition 90 (1988)

These propositions allow eligible homeowners aged 55 and older to transfer the taxable value of their existing home to a new home, under certain conditions, thereby potentially maintaining a lower property tax on the new property.

Proposition 19 (2020)

This proposition recently became effective. It significantly changes the rules about exemptions for inherited properties and also expands the conditions under which older homeowners can transfer the tax basis of their primary residence to a new home.

Example Implication

For instance, under Proposition 19, if you are over 55 and sell your primary residence, you can now transfer its tax basis to a new home anywhere in California, regardless of the new home's market value. This could result in significant tax savings when downsizing or relocating.

For savvy investors and property managers, understanding these propositions is more than a matter of compliance—it’s a strategy. These rules can greatly influence investment decisions, such as when and how to transfer property, and how to calculate the future tax burden of an investment property.

Consult with a tax professional or your local county assessor’s office to explore how these propositions apply to your specific circumstances. They can guide you through the nuances and help you develop a tax strategy that aligns with your property investment goals.

Conclusion

Owning property in California is undoubtedly an attractive investment, but it comes with its own set of tax implications.

Navigating the labyrinth of California's property tax system is a crucial part of safeguarding your investment and property management business.

From understanding the frequency and calculation of your tax bills, to the opportunities for lowering your burden through exemptions and appeals, being well-informed is your first line of defense against unwelcome surprises.

In the constantly evolving world of property investment, knowledge is indeed power.

By staying up to date with changes in legislation, and consulting with a tax professional when needed, you can turn what might seem like a complex and daunting process into a manageable aspect of your investment strategy.