Supplemental Property Taxes
What are supplemental property taxes and why are they processed? Your North Orange County Escrow Expert, Kim S., sheds some light on this common homebuyers’ question!
So what is a supplemental property tax? According to California law under Proposition 13, the county tax assessor is required to adjust the taxable value of a property when the ownership of the property changes or if it undergoes new construction. This means that every time a property either changes ownership OR undergoes new construction, the value of the property must be reassessed. This process ensures that the taxes being charged on a property are based upon an accurate estimate of the current value so there is neither under-taxation nor over-taxation.
The difference between the current value of the property and the value which is established at the time of sale or upon completion of new construction is called the supplemental assessment. Here’s a quick example: Your home may have been valued at its last assessment at $500,000 and you sell it for $550,000. A supplemental assessment is levied for $50,000, bringing the tax rate in line with the current market value.
New construction on a property can also increase value, making it necessary to reassess its current value and may result in supplemental property taxes. For example, if you add a room, pool, spa, or patio cover then you will have likely increased the property value and thus the tax rate must be reevaluated. On the other hand, normal maintenance and repairs such as a new roof or garage will NOT increase the taxable value.
Each change of ownership or completion of construction generates a separate supplemental assessment which becomes a lien or a charge on the property. This is where your North Orange County Escrow Expert may come in to assist in the handling of these liens.
How are the Supplemental Taxes Handled in Escrow?
Any unpaid supplemental property taxes which are reported to the Escrow holder during the escrow period are charged to the Seller at the close of escrow. The buyer and seller may instruct the escrow holder to distribute the taxes, including the supplemental amounts, at the time of settlement or closing.
The Seller or Buyer may receive supplemental property taxes or bills after the escrow has closed. These bills are handled directly between the buyer and seller. Questions which arise after closing concerning supplemental property taxes can be directed to your accountant, attorney, the tax assessor’s office, or your real estate agent.
Contact Kim S or any other of our knowledgeable Escrow Experts at North Orange County Escrow for all your escrow needs!