Homebuyers are often caught off-guard, and confused, by supplemental property tax bills. Receiving an unexpected bill in the mail is never a pleasant surprise, however supplemental property tax bills have been with us since July of 1983. To help you better understand what they are, and how they affect you and your property, we have answered some of the most commonly asked questions regarding supplemental real estate property taxes.
When did Supplemental Real Estate Taxes come into effect?
The Supplemental Real Property Tax Law was signed by the Governor in July of 1983 and is part of an ambitious drive to aid California’s schools. This property tax revision is expected to produce over $300 million per year in revenue for schools. Supplemental taxes are required to be paid in addition to your secured tax bill.
How will Supplemental Real Estate Taxes affect me?
When someone purchases a property in California, the County Assessor is required to immediately re-assess the property for property tax purposes. The re-assessment correlates to the new purchase price, and the process can often take over six months. It is not uncommon to receive a supplemental tax bill close to a year after closing escrow.
The supplemental taxes are based on the difference of the assessed value of a home when purchased by the prior owner, and the newly assessed value when purchased by you. If you are building a new home, the supplemental property tax is based on the difference in value of the land before the home was constructed and the new property value after the home was built
Buyers will receive a “Supplemental Tax Bill” from the County Assessor anywhere from three to twelve months after purchase, depending on the County. This supplemental bill has the potential to be a sizable amount if the seller’s property taxes were relatively low. It is important for buyers to understand they are responsible for paying the supplemental taxes, unlike the secured tax bill that is paid through an escrow or impound account. When you receive this bill, homeowners should contact their loan servicer to find out if their impound account contains enough funds to pay the supplemental bill, without causing a shortage to the impound account.
How are supplemental Real Estate taxes calculated?
Supplemental bills (or refunds) are calculated based on the number of months remaining in the current fiscal year after the month in which the supplemental event occurs. A fiscal year runs from July 1 through June 30.
If a supplemental event occurs between June 1 and December 31, only one supplemental tax bill or refund check is issued. This bill or refund 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 (i.e., the following June 30). If, however, a supplemental event occurs between January 1 and May 31, two supplemental tax bills or refund checks are issued. 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.
The tax amount resulting from a supplemental assessment becomes effective on the first day of the month following the month in which the supplemental event took place; monthly proration factors are used to calculate the taxes owed. Taxes supplemental to the current roll are computed by first multiplying the net supplemental assessment by the tax rate, and then multiplying that amount by a monthly proration factor. The proration factors are as follows:
Supplemental taxes can be very confusing to most, so when questions arise after closing, do not hesitate to contact your loan officer for further information and instruction on how to handle.
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