Homeowners

Understanding California Property Taxes: A Guide for Homeowners

Property taxes are often a source of frustration and confusion for homeowners, especially those navigating California’s occasionally complicated property tax system.

California residents have some of the highest property tax bills in the nation. And those bills often don’t factor in supplemental property taxes. These are additional taxes charged to Golden State homeowners who buy a new home or make significant improvements to their properties.

While California’s taxes can seem complex, understanding how they work can help you better manage your financial obligations and avoid surprises.

Let’s look at how property taxes work in California, including supplemental property taxes that can add to your housing bill.

How does California’s property tax system work?

California residents have some of the highest property tax bills in the nation. The state ranked fifth nationally with an average of $7,131 in 2024, per real estate data provider ATTOM.

However, the state’s effective tax rate is actually on the lower end of the scale. A study by WalletHub showed that California ranks 17th in effective tax rate at 0.71% of the property value. That means homeowners are footing larger bills because their properties are often worth more than those in other parts of the country.

California is different from many other states in terms of how it calculates its property taxes. Most states reassess property values frequently, often annually, based on market value.

However, California does not take the current market value of the property into account when calculating the property tax amount. The tax amount is based on the original sales price of the home whenever it was sold, even if it was decades ago.

Under California’s Proposition 13, home property taxes can only increase by a maximum of 2% per year, regardless of the home’s current value.

But that all goes out the window when the home is sold or undergoes substantial construction. If the newly established market value is well above the home’s previous taxable value, the taxes on a property can rise.

When that happens, it triggers supplementary property taxes, which can cause confusion for homebuyers as they’re settling into their new property.

What are California’s supplementary property taxes?

Supplemental property taxes are additional taxes that a California homeowner may have to pay if there is a significant change in the value of their property. These changes can be triggered by the sale of the property, new construction, or significant improvements made to the property improving its value.

When a home is purchased in the state, the assessed value is reset to the current market value. This can result in a higher assessed value. That translates into higher property taxes.

Additionally, if the homeowner builds a new structure on the property, such as adding an accessory dwelling unit (ADU), or makes significant improvements to their property, like installing a pool, the added value will be reassessed. That leads to supplemental taxes.

If that is the case, the homeowner will receive a supplementary property tax bill for the difference between the previous property tax amount and the new property tax amount based on the higher market value.

Supplemental taxes are prorated based on the number of months remaining in the fiscal year (July 1 to June 30). If a property is purchased in January, for instance, the homeowner will pay supplemental taxes for the period from January to June.

The homeowner could receive two supplemental tax bills, due to the state’s fiscal year running from July 1 through June 30.

According to the State of California, if the event that triggers the property evaluation (either a sale or improvement) occurs between June 1 and December 31, one supplemental tax bill will be sent out.

If the event occurs between January 1 and May 31, two supplemental tax bills will be sent out. The first one covers the current year and the other one covers the following year.

Important notes about supplementary property taxes

California homeowners should note that supplemental tax increases do not happen every year. It is only triggered in the year of the sale or improvement.

So, once these additional taxes are paid, the homeowners’ property taxes will be based on that new value of the home. And those taxes can only go up by a maximum of 2% a year.

It’s also important to note that counties do not send supplementary property tax information to lenders. Therefore, the homeowner is responsible for paying their own supplementary property taxes, even if their mortgage lender typically pays property taxes on their behalf via an impound account. (An impound account is typically used by the lender to pay taxes and insurance.)

So, if you are a California homeowner who bought a new home or improved your property this year, be on the lookout for a supplementary tax bill.