April 12, 2013
You did it! Congratulations on closing escrow and officially being a property owner!
Once the elation simmers down and you begin to figure out the nuts and bolts of how to live in your new home, you will probably begin putting systems in place for managing the monthly and annual expenses of owning your new property.
Before getting into contract, we walk all of our our clients through the property expenses they can expect to pay, in addition to your monthly mortgage (assuming you put a loan on the property) and operating expenses. However, we know what it is like to close escrow. Your hand is super tired from signing a million documents, your head hurts, and you are just so excited about your new place, the last thing you want to do is start figuring out your expenses.
So let’s take the time to refresh you on what is what:
Common operating expenses vary across product type. If your new property is a condo, one of the operating expenses may be condo liability insurance, in addition to HOA payments and other possible expenses. If you’re now the new owner of an apartment building, one of your new expenses will probably be to a property management company, for help handling the general day-to-day management of the property, leasing of units, and a handful of other things.
However, regardless of the type of property you own, every property owner has to pay real estate taxes to the City and County of San Francisco’s Office of the Treasurer and Tax collector.
At Salma & Company, we get a lot of questions about property taxes, especially in December and April, when 1st and 2nd installment payments are due.
In today’s blog, we answer some of the most commonly asked questions that our clients ask us:
1) How are my real estate taxes calculated?
Let’s take a quick look back at the year 1978…
“The People’s Initiative to Limit Property Taxation” was proposed legislation that became an amendment to the California Constitution in 1978. Article 13A of that document established the maximum property tax rate to be one percent (1%) of the assessable value. In addition to this base rate of 1%, tax rates deemed necessary to pay off indebtedness, such as bonds authorized by the voters, may be added.
2) What is the Fiscal Year 2012-2013 Property Tax Rate for San Francisco?
3) How do I calculate that?
Example: If you purchased your condo for $858,000, your property tax payment for the year would be: $10,030.87.
The tax amount may also be increased for any special benefit assessments, such as sewer service, school bond assessments or reduced by any legal exemption which may apply.
4) How is the value of my property assessed?
Real property is appraised by the city and county of San Francisco on two occasions:
1) When the ownership of the property changes, and
2) When new construction or significant improvements (other then normal maintenance) to the property take place.
Once this value is determined, Proposition 13 limits the ability to increase that value by more then 2% per year.
For example, if you bought your new home for $1,500,000 in 2012-2013, your property tax amount due for the first year would be: $17,536.50.
If the city decides that your home is worth 2% more during your second year of ownership, your home value would be: $1,530,000. Your property tax amount due for Year 2 (based on Year 1 tax rate*) would now be: $17,887.23*
*this is for example purposes only. This number would alter slightly depending on what the published tax rate would be for Year 2.
5) When are property taxes due and how do I pay them?
Your annual tax bill (aka secured property tax bill) is mailed every October. Depending on the when your ownership was put on the tax roll, the annual tax bill is sent to either the previous owner or directly to you. If you haven’t received a secured property tax bill by November 1, you should make sure to contact the SF Office of the Assessor/Recorder to get a new copy. Regardless, you still have to pay your tax bill on time, even if you didn’t receive it when expected, as state law does not allow the Office of the Treasurer & Tax Collector to excuse penalties for late payments.
The first tax installment is due by December 10th, and the second installment is due by April 10. If December 10 or April 10 happen to fall on a weekend or holiday, taxes are not delinquent until 5 p.m. the next business day.
6) What else do I need to worry about?
Alas, in addition to your annual property taxes, you may be responsible for paying supplemental property taxes. Any time property is sold, the value of the property is reassessed. When a reappraisal is made, that additional assessment is called a “supplemental assessment” and reflects the difference between the existing value and the new value. This “supplemental assessment” generates a “supplemental tax bill” which is pro-rated based on the number of months remaining in the year, ending on June 30. If your property has been reassessed at a higher value, you will receive one or more supplemental tax bills, in addition to the annual bill we discuss above.
Real estate taxes can be hard to understand at first, but we are here to help you navigate through the confusion.
For more information on real estate taxes in San Francisco, please feel free to contact us.