How Do Property Taxes Work in California?

California offers a lot in the way of prime property and is definitely one of the top areas of attraction real estate-wise. Now, you would expect that given such a back story, property taxes would be through the roof.

You would be wrong. California home/property owners pay way below the national average. 

So, how do property taxes work in California? Your tax is determined using the purchase price of the property since the purchase price usually equates to the assessed value. From here on out, your assessed value sees an increase annually based on the inflation rate.

The inflation rate comes from changes in the California Consumer Price Index.

What are Property Taxes?

In the simplest terms possible, property taxes are levies attached to owning real estate by the government. Taxes are mainly levied at state, county, and local levels. By way of some ancient history, property tax has been for the longest time and can be traced back to the 6th century B.C. 

In the U.S., property taxes were levied even prior to income tax. All states, as well as Washington D.C., levy a property tax while certain states do not even levy an income tax.

Owning real property in California implies that you would mandatorily have to pay real property taxes. It really doesn’t matter if you own rental property or if you got the property as a gift, you would pay property tax all the same. 

Similarly, payment of property tax isn’t designated by property price. In other words, whether you have a $60,000 or a $6,000,000 property, you would still pay based on the respective home values. 

There is a possibility that you purchase property mid-year, and when this happens, your real estate agent would likely negotiate to split the real property tax payment for that calendar year with the seller.

To confirm whether this is the arrangement made, review your mortgage interest statement.

Property Tax Calculator

Use our free calculator to find out how much taxes are paid on a property.

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How are Property Taxes Calculated?

Assessment of property and calculation of property tax is determined by California's Proposition 13, passed in 1978. The basic principle for calculating is that you multiply the tax assessed value of your property by the tax rate.

The proposition also determines that the standard state tax rate is set at 1%. 

The proposition states that property taxes may not exceed 1% of home value. From this, we can glean that property owners pay 1% of their property’s value in the way of real property taxes. This is an ad valorem tax, implying that taxation is done according to value.

Similarly, the value cannot go up to an amount beyond the rate of inflation that the Consumer Price Index measures. That limit being 2% per year. 

The sales price listed on the deed is used to determine the base year value upon initial property purchase. Assessed value may also see adjustments in the face of home improvements or when the home is sold.

Assessors consider value changes in similar properties within the neighborhood as well as prevailing market conditions. 

When Do You Pay Property Taxes?

Tax day comes around pretty fast and if you’re not careful, it might meet you unprepared. In addition to filing your income taxes, you should keep an eye on your property taxes too. The State of California’s fiscal year begins on July 1st and runs through to June 30th.

Property taxes are assessed and collected by the county your home is located in. 

First off, it is essential to remember that there are two installments due, as well as recall the date of these installments.

The first installment runs from July 1st through December 31st and tax payment is slated for November 1st, and only becomes delinquent on December 10th. Failure to make a payment by 5 p.m. on the delinquent date attracts a penalty of 10%. 

The second installment is due by 1st February and becomes delinquent on 10th April. To recall, just have the mnemonic “No Darn Fooling Around” (representing the first letter of each month) ringing in your head and you would remember for sure!

Remember that failure to pay property taxes as at when due see your penalties rising consistently. 

If you pay your property taxes alongside your mortgage, you would not have any unpaid balance by November 1. 

Where Do Your Property Tax Dollars Go?

Now, this is a question that many property owners ask. What happens to all the property taxes that you pay? Well, your property tax is what keeps the state and local governments functioning. They comprise a bulk of the revenue that goes into funding public safety, infrastructure, public schools, as well as the county government. 

Particularly for public schools, it is easy to find that the best public schools are located in municipalities that have highly-priced homes and as a result, significant property taxes.

County projects are funded by some states, while others leave the counties to carry out the levying and tax use without interfering. This implies that the county has only property taxes as its source of funding.  

Here’s a summary of public services that your tax dollars go towards funding:

• General government services 
• First responders and other law enforcement
• Municipal employees’ pay
• Municipal infrastructure and land construction or improvements
• Local levies
• Protective services
• Recreational services
  

Confused About Property Taxes vs Real Estate Taxes?

You've probably heard the terms property taxes and real estate taxes used multiple times, and you're wondering if there's a difference? Well, the key difference between property taxes and real estate taxes is that there is no difference. They are identical and used interchangeably. So, next time you hear these terms being used within the same frame of conversation, you know that it's pretty much the same. 

Final Thoughts on Property Taxes and How they Work 

Property taxes are necessary for running the county and state by extension, and this is why they are so important. You can easily calculate your property tax ahead of time and now you know exactly where these funds go. And if you ever forget the dates, remember, No Darn Fooling Around!