By Summer Knight
2025 President
Santa Barbara Association of Realtors
Purchasing a home is an exciting milestone, but along with homeownership comes financial responsibilities, including property taxes. Whether you’re buying your first home or your forever home, understanding property taxes is crucial for planning your budget and making informed decisions.
The National Association of REALTORS® (NAR) provides an in-depth consumer guide on property taxes. Below are some key points to consider when buying a home.
What Are Property Taxes?
Property taxes are levied by local governments and are based on the assessed value of your home and land. These taxes fund essential public services such as schools, law enforcement, fire departments, and road maintenance. In some states, personal property like vehicles and boats may also be taxed.
How Do Property Taxes Work in California?
In California, property taxes are governed by Proposition 13, which was passed in 1978 to limit how property taxes are assessed and increased. Under Prop 13:
- A property’s initial tax assessment is based on its purchase price at the time of sale.
- The base property tax rate is set at 1% of the assessed value, with additional voter-approved local taxes potentially increasing the overall rate.
- Annual increases in assessed value are capped at 2% per year, regardless of market value changes, unless there is a change in ownership or new construction.
This system provides stability for homeowners by preventing dramatic increases in property taxes over time, but buyers should be aware that their property’s tax basis will reset upon purchase.
Can I Know the Property Tax on a Home Before I Purchase It?
Yes! Property tax information is typically available in real estate listings and through your local multiple listing service (MLS). You can also request the most recent tax bill from the seller and inquire about the last reassessment. Keep in mind that in California, due to Prop 13, the assessed value of a home will be reset based on the purchase price, which can lead to higher property taxes for new homeowners compared to long-term owners of similar properties.
How Are Property Taxes Calculated?
Property taxes vary widely depending on your location. They are calculated by multiplying the local tax rate (or “millage rate”) by the assessed value of your property, minus any exemptions. The assessed value is usually a percentage of the home’s market value and is determined by factors like the property’s condition, comparable sales in the area, and broader market trends.
For example, in California:
- If you purchase a home for $800,000, your base property tax would be $8,000 per year (1% of assessed value), plus any local tax add-ons.
- The assessed value will increase annually by a maximum of 2%, meaning your property tax obligation will also increase gradually over time.
Are There Property Tax Exemptions?
Certain homeowners may qualify for property tax exemptions that can lower or even eliminate their tax burden. Common exemptions include those for senior citizens, veterans, people with disabilities, and surviving spouses. In California, the Homeowners’ Exemption provides a modest property tax reduction for primary residences. Check with a tax expert or your local REALTOR® to see what programs apply in your area.
How Do I Pay My Property Taxes?
Most homeowners pay their property taxes through an escrow account, which is set up by their mortgage lender. A portion of your monthly mortgage payment is allocated to this account and used to pay your tax bill when it’s due. Alternatively, some homeowners choose to pay their taxes directly to the local tax authority.
How Often Are Properties Reassessed?
In California, reassessments occur only when there is a change in ownership or new construction due to Prop 13’s protections. Otherwise, property values increase by a maximum of 2% per year, even if market values rise at a faster rate. This can create disparities between long-term homeowners and recent buyers in terms of tax burdens.
Can I Challenge My Property Tax Assessment?
If you believe your property has been over-assessed, you have the right to appeal. This process involves submitting evidence—such as comparable home sales or an independent appraisal—to demonstrate that your home’s assessed value is too high. Be sure to check with your local tax authority for the appeal process and deadlines.
What Are Transfer Taxes?
Transfer taxes are separate from annual property taxes and are a one-time fee imposed when a property changes ownership. These taxes vary by location and may be paid by either the buyer or seller, depending on local regulations. Your real estate agent and legal counsel can help you negotiate who covers this cost in your purchase agreement.
Final Thoughts
Understanding property taxes is an essential part of homeownership. In California, Prop 13 plays a key role in how taxes are assessed and adjusted over time, making it important for buyers to understand how their tax burden will change upon purchasing a home.
Practices and tax rates can vary significantly based on local laws, so it’s important to consult a REALTOR® or a tax professional when making your home purchase.
The Santa Barbara Association of REALTORS® is here to support buyers throughout their homeownership journey. If you’re ready to start your search, connect with a REALTOR® who will advocate for you every step of the way.
For more information and resources, visit www.sbaor.org.
Summer Knight is a Santa Barbara native and top producing Realtor at Sun Coast Real Estate. Summer has been a member of the Santa Barbara Association of Realtors for over 20 years and currently serves as the President of the Board of Directors. Reach Summer at 805-886-1261 or summer.k.knight@gmail.com.
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