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Property Taxes – A Brief Introduction.

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Property Taxes – A Brief Introduction.

  • 07 Jul 2023

I've seen it all when it comes to property taxes as a top real estate agent. Some property owners look forward to getting their tax bill in the mail so they can grab their chequebook and pay it. Others, on the other hand, start to sweat simply thinking about the yearly tax assessment. In order to remain on top of everything, it is always worthwhile to better understand how officials determine property taxes and when they are due. Let's examine property taxes in more detail and see why you should be concerned.

Do I Really Need To Pay Property Taxes?

Property taxes are levied by local governments on the value of real property. These taxes fund public services such as schools, police and fire departments, roads, and other local infrastructure. The amount of property tax one owes is based on the assessed value of the property, determined by the county assessor’s office. Homeowners pay property taxes paid bi-annually, and failure to pay results in severe consequences including:

1. Penalties and Interest – Delinquent payments are subject to penalties and interest that accrue at the rate of 10% annually.

2. Loss of Tax Benefits – A person who does not pay their property taxes may lose any tax benefits associated with ownership of the property, such as deductions or credits for homeownership expenses.

3. Legal Action – The county may take legal action against a person who does not pay their property taxes, including filing a lien on the property and initiating foreclosure proceedings.

4. Loss of Homeownership Rights – Non-payment of taxes may initiate foreclosure, and the homeowner could permanently lose their rights to the residence, resulting in court official evicting the homeowner.

Local governments rely heavily on property taxes as a source of funding since they are necessary to assuring the delivery of basic services to their constituents. Therefore, be diligent about paying your taxes on time. It's possible that your house is at risk.

Calculating Property Taxes

Property taxes in the Bay Area are calculated by officials in several ways. Ad Valorem taxes on the assessed value of the property and other bond liabilities that have voter approval make up the first portion. The base tax rate for the counties of Alameda and Contra Costa is 1% of the assessed property value. The base rate rises to 1.2172% in Alameda County and 1.4324% in Contra Costa County when the municipal and county bond liabilities are included.

Each city and county adds voter-approved special assessments to the property tax bill in addition to the Ad Valorem taxes. Parks, libraries, schools, roads, and other public facilities are funded in part by these levies. It is challenging to give a precise tax rate for your specific property because each city has a unique combination of taxes that last for a range of times.

I've started using 1.7% of the property value as a conservative average to predict how much homeowners will pay in property taxes. The estimated annual property tax payment for a $1,500,000 home purchase is $1,500,000 x 1.7%, or $25,500. Two payments of $12,750 each will be made to cover this tax burden, as will be explained in greater detail below.

Secured vs. Unsecured Property Taxes

Taxes assessed on what is referred to as "Real Property" are regarded as secured. Real estate often comprises of land and immovable constructions like your house that are permanently affixed to the land. Since the county has the right to make a claim on the property in the event that a homeowner doesn't pay their taxes, the "Real Property" serves as a "secured" guarantee for the taxes. 

Unsecured property taxes are levied on items like machinery, office furniture, boats, aeroplanes, and other personal property. These kinds of taxes are regarded as unsecured because they are frequently moveable and cannot be depended upon to be accessible in the event of a tax default.

Unsecured tax obligations are uncommon for the majority of people. However, if you do own expensive equipment or other assets that are listed with the county and subject to taxation, it is important to maintain track of such responsibilities.

Supplemental Taxes

Should a property undergo renovation or a change in ownership, it is referred to as a ‘supplemental event’ and triggers a new appraisal to determine the current value of the property. In most cases, the appraised value will be the same as the price paid for the property. Any increase in property value resulting from the appraisal is reflected in an updated assessment and a prorated supplemental bill. 

Assuming the supplemental assessment shows an increase in value, the county auditor will calculate the increase in taxes based on the new value. Afterward, the county tax collector will generate and send one or two supplemental tax bills. This bill covers the period from the first day of the month following the supplemental event to the end of the fiscal tax year. 

Keep in mind that the property tax fiscal year runs from July 1st through June 30th of the following year.

If a supplemental event occurs between July 1st and December 31st, officials only issue one supplemental tax bill. This bill accounts for the property’s change in value for the period between the first day of the month following the event date and the end of the current fiscal year. If, however, a supplemental event occurs between January 1st and May 31st, officials issue two supplemental tax bills. The second bill accounts for the property’s change in value for the entire 12 months of the coming fiscal year, beginning on the following July 1.

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