How the Property Tax System Works

Post California Proposition 13

When You Purchase
When you purchase a home, the California County Tax Assessor reassesses the property and sets a new property tax amount based on your purchase price. Your property tax base rate will be approximately 1% (1.04% in HB) of your purchase price, plus any voter approved bonded indebtedness of the community such as a "Mello Roos" assessment or "pest abatement". The Preliminary Title Report is a required disclosure from the seller which will detail these and other types of liens, assessments, easements, etc. that are tied to the purchased property. Review this document carefully. If you (as the Buyer) do not fully understand what you are reading consult with your Title Representative who provided this report to your Realtor and escrow officer for disclosure by the seller to the buyer.

In future years, the tax assessor is allowed to increase the accessed value by a maximum of 2% per year. This increase can be challenged by the homeowner in an Assessment Appeal.

Historical Note

Beginning in 1992 (and again in 2005), the California real estate market (in general) began a decline. Post 1992, the Assessor and the Assessment Appeals Hearing Officers and Boards reduced substantial numbers of property values in Orange County because the assessed values were higher than actual market values. The majority of these reductions were not permanent, however, but were temporary annual adjustments to reflect the market conditions that existed at that time.

Since 1992 the housing market has reacted to a much improved economy and lending environment and market values increased accordingly. This means that many properties may have been temporarily reduced below the actual market value. Therefore, homeowners experienced increases in their properties’ assessed values during the following years until full recovery was reached. Although these increases may be substantial, they may never exceed the property’s initial base value plus any added improvements value and a maximum 2% per year CPI inflation factor. The total of these three elements is called the "indexed value." This indexed value remains your actual taxable assessed value.

The real estate market dramatically improved since the 90’s and property values have gone up dramatically. Although assessments have and will increase, the good news is you were able (and will be able to in the furture) avail yourself to temporary property tax reductions during periods of property value stagnation or reduction by going through a formal appeal procedure.

Homeowner's Exemption
This is a deduction of $7,000 from the "accessed value" and applies only to owner-occupied properties. Once you've purchased a home you will receive a card to fill out to apply for the exemption. The card must be completed and returned between March 1st and April 15th. Applications submitted after April 15th, but before the end of the year will qualify for only 80% of the exemption.

Supplemental Tax Bill
Boy can this one cause problems. Yes, the tax assessor reassesses the property when it is sold, but they don't always get the new tax bill amount "into the system" in a timely manner. The first tax bill that many buyers mistakenly receive is one which reflects the rate for the previous owner. So you get this bill, and think, "Wow the taxes aren't as high as I thought", pay the bill, send it off and think you are done. Wrong. Expect that you will get another tax bill, this one called the Supplemental Tax Bill. It will cover the difference between the old rate (which you already paid) and the new rate (which you really owe).

For more information on this topic go to The Orange County Auditor-Controller’s site at: .