Proposition 13: Caps assessment hikes to no more than 2% per year and only upon resale
Wedded to the Land
Property Taxes in San Francisco
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Property taxes in one of the most expensive markets in the country could be complex and may be hemmed in by such things like Prop 13 and Prop 60. Let's start with the basics.
Proposition 60: One-time benefit for folks 55 years or older to bring previous home’s assessment to new home (105% of home A’s sale price to home B within 1 year; 110% within 2 years) within the same county; 11 other counties (Prop 90)
Proposition 58: Parent-to-child-home transfers excluded from reassessment
Proposition 193: Grandfather-to-grandchild-home transfers excluded from reassessment
Apart from changing over utilities, setting up move dates and picking paint colors, you now have the joy of being a fully vested San Francisco property tax payer. You are now joining the other folks who pay more than $2 billion to the City every year. For years the City was using a COBOL-based computer system to keep track of your tax obligations —COBOL was a vintage 1970s OS where such features as ‘copy’ and ‘paste’ were unheard of. But the City recently spent millions to upgrade and update to something more modern. Combine that with unfettered access to MLS data, property tax collection efforts have become more efficient and faster.
Property Tax FAQs
Your initial property tax assessment basis is your purchase price (or a property’s fair market value determined by the Assessor Office staff effective the date you acquired it). Your obligations start the day you close on the purchase. Your annual property taxes must be paid in two parts with the first half due anywhere from February 1 – April 10 and the second half due anywhere from September 1 – December 10 of any given year.
How much are my San Francisco Property Taxes?
When there is a change in ownership – like a home sale – the Office of the Assessor–Recorder will issue a new assessment based on that sale price in most cases. That amount will be combined with any parcel assessments for schools or otherwise. What’s tricky here is when you get that new tax bill. The Assessor–Recorder’s office is slow in updating their records. So if you get a bill for a lot less than you expected, they didn’t overlook your sale — they just haven’t processed it yet.
What happens when they catch up to you and your purchase?
One day you’ll get an ‘important notice’ from the Assessor. This is the day your Supplemental Tax statement arrives. That statement should list your close date and the difference you now owe between what the previous owners paid and your new assessed value. You’ll have up to 90 days to pay the difference but the deadline may be shorter based on when they get around to it.
When can I expect my Supplemental Tax bill?
Two months to two years after close.
What about ad valorem (special assessment) taxes?
These are tax obligations that are tied to your property’s value. The usual destinations for additional assessments are educational institutions, e.g., San Francisco Unified School District, City College etc.
Then you may have taxes because your property sits in a ‘special use’ district (you’ll see these indicated as Mello-Roos Districts) for certain neighborhoods for various improvements located within the district.
Last, all those City bond initiatives can add up too.
These obligations have to be disclosed to potential buyers and are usually contained with natural hazard reports or preliminary title reports.
Annual increases to San Francisco property tax rates have hovered around 1.17%-1.18% for the past few years. For more, check the following link: https://sftreasurer.org/property-taxes
Recent Annual Rates:
Can I deduct property taxes I pay?
For federal returns, until the latest Trump tax plan, amounts you paid in property taxes were deductible. They still are but now there’s a cap on non-federal deductions of $10,000. This means that state income taxes you pay will usually exceed the local property taxes you pay.
Do I have to pay impounds?
Certain lenders and certain HOAs might require you to pay property taxes along with your HOA dues over a given year. Usually this money is held in an escrow account to pay taxes in February and November as you can’t pay taxes early.
Escape Taxes and Set Asides
With all the new construction in the City and the speed of flips it’s more than possible where someone buys a property and sells it before having to pay any property tax at all — where a previous owner’s tax bill was next to nothing or, was in fact, nothing. It’s in these situations where a seller owns a property with little or no preexisting tax assessment that the escrow company will either hold ‘escape tax’ monies after their final reconciliation with a credit to the buyers or the parties will expressly agree that the seller will pay the bill when it comes due. And if you bought your home for less than the assessed value on file, you will still have to pay the bill amount. One day in the distant future you’ll get a credit for any ‘overpayment.’
A Few Tips
- Your property tax basis is usually based on the recorded sale price
- Your property taxes begin the day we close but your actual bill may not reflect that amount
- The title company will prorate everything accordingly and you may get a credit back at close
- The City will send you a supplemental tax bill to capture the difference between the previous assessed basis and your sale price — don’t think they missed something, they didn’t. You can’t pay this supplemental amount early but budget as if you were paying from day 1
- Property taxes are due twice a year (February and November) but you may only ever get 1 printed statement
- Only pay amounts printed, don’t over or underpay or the whole amount may get dinged
- Your property tax bill amount changes each year but Proposition 13 caps any assessment increase to no more than 2 percent over a previous year unless you remodel your property
- If you’re over age 55 and purchasing another home in San Francisco, you may be able to bring your previous property tax basis with you subject to certain conditions
- If you remodel your home you’re required to file permits with the City, upon which the Assessor will recalculate your property’s basis (but the increased value is usually limited to the work’s value and not the resulting boost in market value)
- You can petition the City to reassess your property tax basis
- If City doubts a property’s sale price, it might seek to adjust it to a ‘fair market value’
- Late penalties are 10 percent
- If you fail to pay your property taxes for 5 years, you will not only face property tax liens but the risk of a redemption sale
Remember, your property is different and there may be a whole lot particulars at play. This is a long way of saying that if you have questions, feel free to ping us and we’ll see how we can help or direct you to someone who can.