Tip of the Month - August 2005

Understanding Supplemental Property Taxes

California law enacted under Proposition 13 requires the county tax assessor to adjust the taxable value of a property when the ownership of the property changes or when the property undergoes new construction. The supplemental assessment represents the difference between the current value and the value which is established at the time of sale or upon completion of new construction.

As an example: On the current tax roll, a property has a value of $200,000.00. The property sells for $250,000.00. A supplemental assessment is levied for $50,000.00, bringing the tax rate in line with the current market value.

New construction on a property can also trigger a reassessment of the value. Examples of new construction might include room additions, pools, spas, and patio covers. Normal maintenance and repairs such as a new roof or garage door will not increase the taxable value.

Each change of ownership or completion of construction generates a separate supplemental assessment which becomes a lien on the real property. Events that occur between January 1 and May 31 result in two supplemental bills: the first bill is for the balance of the current fiscal year, and the second bill is for all of the upcoming fiscal year.

How are supplemental taxes handled in an escrow?

Any unpaid supplemental tax bills which are reported to the Escrow Holder during the escrow period are charged to the Seller at close of escrow. The buyer and seller may instruct the escrow holder to prorate the taxes, including the supplemental amounts, at the time of settlement.

The parties may receive supplemental tax bills after the escrow has closed. These bills are handled directly between the buyer and seller. Questions which arise after closing concerning supplemental taxes can be directed to your accountant, attorney, the tax assessor's office, or your real estate agent.

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