How Can New Construction Affect California Property Taxes?

 Posted on January 09, 2025 in Property Taxes

There are many reasons why homeowners or other property owners may want to make improvements to their properties. However, when doing so, they need to understand the effects that these improvements may have on their property taxes. Under the California Revenue and Taxation Code, certain improvements or additions to a home or commercial property are classified as new construction, which can trigger a reassessment of the property’s value.

In the San Francisco Bay Area, where property values are high and construction projects are common, understanding how new construction affects property taxes is essential for property owners. A California tax attorney with experience in property tax law can provide invaluable guidance to ensure that these issues will be correctly addressed.

What Is Considered New Construction Under California Law?

California’s Proposition 13 governs how property taxes are assessed, generally limiting annual increases in assessed value to 2%. However, when new construction occurs, the value of the property may be reassessed at its current market value. Under the California Revenue and Taxation Code, "new construction" includes:

• Any Additions to the Property: This may include building a new room, adding a second story, constructing a garage, or installing an accessory dwelling unit (ADU).

• Rebuilding After a Demolition: Tearing down and rebuilding a home or structure can result in a reassessment.

• Significant Improvements: Certain enhancements may increase the property's market value, such as installing a swimming pool or upgrading a commercial property’s facilities.

Routine maintenance or repairs, such as replacing a roof or repainting a building, are generally not considered new construction, and they will not trigger a reassessment.

How New Construction Triggers Property Tax Reassessment

When new construction occurs, the county assessor determines the market value of the improvement and adds this amount to the property's existing base value. Here is how this process works:

• Notification to the Assessor: Construction permits typically alert the county assessor of potential reassessment events.

• Calculation of New Value: The assessor evaluates the market value of the improvements based on the type of construction, materials used, and the overall enhancement to the property.

• Revised Tax Bill: Once the reassessment is complete, a property owner will receive an updated tax bill reflecting the increased assessed value.

For example, if a property’s base value is $500,000 and the owner constructs an ADU that adds $200,000 in value to the property, the assessor may reassess the property’s value at $700,000. Property taxes will then be calculated based on the new assessed value.

Exemptions and Exclusions

California law offers some exemptions that can help property owners avoid reassessment in specific situations:

• Seismic Safety Improvements: Work to make a building earthquake-resistant is exempt from reassessment.

• Energy Efficiency Upgrades: Installing solar panels may not result in a reassessment.

• Accessibility: For single-family and multiple-family homes, installation of wheelchair ramps or other improvements meant to accommodate people with disabilities will not result in a reassessment.

Understanding and applying these exemptions requires familiarity with the complex nuances of California property tax law. An experienced attorney can be an essential resource when evaluating improvements and determining what exemptions may apply.

How Our Attorney Can Help Minimize Property Tax Burdens

Navigating property tax reassessments can be challenging, particularly when planning and executing construction projects. Our California property tax attorney can assist property owners in several ways, including:

• Providing Pre-Construction Guidance: We can help determine whether planned improvements will trigger a reassessment, and we can work with property owners to explore strategies that will minimize the impact on their property taxes.

• Navigating Exemptions and Exclusions: Our lawyer can identify and apply exemptions to ensure that a property owner can benefit from tax relief wherever possible.

• Filing Appeals: If a property owner believes the assessor’s valuation is too high, our attorney can assist in filing an appeal and presenting evidence to reduce the assessed value.

Contact Our California Property Tax Attorney

If you are considering construction or improvements on your property in California, it is important to understand how these changes may affect your property taxes. The experienced California property tax lawyer at John D. Teter Law Offices can provide the legal support you need, helping you address issues related to assessments and working to minimize your tax burdens. Contact our office at 408-866-1810 to schedule a consultation and begin taking steps to address your property tax concerns.