California Homebuyer: Supplemental Property Taxes Explained

The below article is based on this video https://www.youtube.com/watch?v=S6kTB5bvzh8

Understanding Supplemental Property Taxes for California Homebuyers: What You Need to Know

If you're purchasing a home in California, you need to brace yourself for something that often catches buyers off guard: the supplemental property tax bill. While property taxes are a standard part of homeownership, the supplemental bill can take many by surprise. Let’s break down what it is, why it matters, and how you can prepare.

What is a Supplemental Property Tax Bill?

In California, property taxes aren’t set in stone at the time of purchase. Instead, after you buy a home, the county reassesses the property value based on the purchase price. This reassessment can take time, sometimes months, or even more than a year, and the difference between what the previous owner was paying in taxes and what you’ll owe is what the supplemental property tax bill covers.

For example, let’s say you purchase a property, and based on the current ownership, the yearly taxes are $2,000. However, because you bought the property at a higher price, your taxes should actually be $10,000 annually. Until the county officially reassesses the home, you may continue to pay taxes at the lower rate. When the reassessment finally happens, you’ll be billed for the difference—usually broken into two payments. So, in this case, expect an $8,000 supplemental tax bill.

Why Does This Happen?

The delay is rooted in how property laws work in California. When you purchase a home, the county’s role is to reassess the value of the property based on your purchase price. However, many counties, especially in California, are notoriously slow to reassess. Some even take a year or longer. During this wait, you’re essentially paying the old owner’s tax rate, which could be much lower if they’ve owned the property for several years or even decades.

In short: The longer the county takes to reassess, the bigger gap there is between what you’ve paid and what you’ll owe once the county catches up.

The Impact of Delayed Reassessment

Many buyers misunderstand this delay, assuming that because they’ve been paying a lower rate on taxes, that’s all they owe. But once the county reassesses the home, you’re responsible for the difference retroactively, going back to the point at which you closed on the house.

In some counties, this delay can stretch on for over a year. During this time, you may be thinking, “Wow, I’m saving so much!” But rest assured, California will collect every penny eventually. When the county finally sends the supplemental bill, it can shock homeowners who aren’t prepared for it.

How to Prepare Yourself

First and foremost, understand that the supplemental property tax bill isn’t permanent. It’s a one-time adjustment that covers the difference between the old owner’s tax rate and what you’ll owe. After you pay the supplemental bill, your property taxes will align with the rate based on your purchase price and the legally allowed increase amount yearly.?

Here’s how to avoid a nasty surprise when the bill arrives:

1. Know the Current Owner's Tax Rate When you’re in the process of purchasing a home, ask what the current owner is paying in property taxes. This can give you a rough idea of how much you’ll owe in retroactive taxes once the home is reassessed. However, your taxes will still be recalculated based on your purchase price.
2. Look at the Proposed Property Tax Estimate Most lenders provide you with an estimate for property taxes. Pay close attention to that number. That’s the figure you should expect to pay once the county reassesses the home. If your current tax bill is significantly lower than the estimate, you’re looking at a supplemental bill in the future.
3. Keep an Eye on the Mail If you receive property tax bills with the previous owner’s name on them, this means the property has not been reassessed yet. Just because the amount is lower than expected doesn’t mean you won’t owe more down the line.
4. Create a Savings Plan Whether you have an escrow account or not, if the property taxes you’re paying monthly are below the estimated amount, start saving the difference immediately. For instance, if your lender estimates $600 per month in taxes but you’re only being billed for $200, put aside the $400 difference. That way, when the supplemental bill comes, you’ll be ready.

Managing Escrow Accounts

If you have an escrow or impound account (where the lender collects property taxes on your behalf), pay special attention. Even if the lender has calculated your taxes based on the projected assessment, they cannot keep excess funds in escrow. If they receive a tax bill lower than anticipated, they are legally required to issue a refund to you for the overage.

It’s tempting to view the refund check as extra cash, but keep in mind that this is not free money. It’s a refund due to the county's delay—and when the reassessment eventually happens, you’ll need that money to cover your supplemental bill. So, be disciplined and save those funds.

Avoid the Payment Trap

When your taxes are reduced due to delayed reassessment, it also means your monthly mortgage payment may decrease. Some homeowners mistakenly think their payment has permanently dropped and start adjusting their budget around it. This is a mistake. The moment the house is reassessed at its current value, your payment will rise again. If you spend the excess cash now, it can leave you scrambling later to cover the increased cost.

Conclusion

If you're buying a home in California, the supplemental property tax bill is an important aspect to understand. It can slip under the radar for many buyers, but if you know it’s coming and plan for it, you won’t be caught off guard.

To summarize:

• The difference in property taxes between the prior owners and when the county reassesses based off of the purchase price you pay is what leads to the supplemental bill.
• This bill is, fortunately, a one-time hit, but it can be substantial.
• Prepare by saving the difference between what you’re currently paying and what your ultimate tax rate will be.
• Don’t make the mistake of thinking your lower tax bill or refunded escrow money are permanent windfalls.

By paying attention to your tax bills, understanding the reassessment process, and saving accordingly, you can avoid the financial shock that often comes with the supplemental property tax bill in California. Stay proactive, stay informed, and you’ll navigate the process with ease.

Jennifer Beeston

SVP Mortgage Lending @ Guaranteed Rate

Phone: 786-933-2077

[email protected]

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About The Author:

Jennifer Beeston is a nationally known mortgage originator who is known for her ability to make the mortgage process easy to understand and zero stress.? Featured in articles by US News, Business Insider, TIME, NBC news and countless others, Jennifer is a vocal advocate for mortgage transparency and consumer empowerment.? You can find her on Youtube where she has created a library of mortgage education so that everyone can understand mortgages and obtain the dream of home ownership.? Her passion is empowering and educating Americans and helping them get HOME. She is ranked as the #1 VA Loan Officer* in America and is licensed in 48 states to do mortgages.? She has been a top 1% lender since 2016 and offers VA, Conventional, FHA and Jumbo mortgages.? She is also the author of Brainhacked, which is a modern guide for saving and protecting your money in a tech based world.

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