What Are Supplemental Property Taxes?
When a property changes hands or undergoes significant construction, the local tax assessor reassesses its value to reflect current market conditions. A supplemental assessment is made if this reassessment results in a higher property value, leading to a supplemental tax bill. This bill represents the difference between the previous and new assessed values, prorated for the remainder of the fiscal year.
In real estate transactions, escrow accounts are commonly used to manage property taxes and insurance payments. However, supplemental tax bills are separate from regular property tax bills and are often not accounted for in standard escrow arrangements. This means homeowners may receive a supplemental tax bill directly and must pay it out-of-pocket, even if they have an escrow account.
How Are Supplemental Taxes Calculated?
The calculation involves determining the difference between the new and old assessed values, then applying the local tax rate to this difference. For example, if a property’s assessed value increases by $50,000 due to a recent sale or new construction, and the local tax rate is 1%, the annual supplemental tax would be $500. This amount is then prorated based on the months remaining in the fiscal year.
Impact on Homeowners
Receiving an unexpected supplemental tax bill can surprise new homeowners financially. It’s important to anticipate this possibility and budget accordingly. Consulting with real estate agents and escrow officers during purchasing can clarify potential supplemental taxes and help avoid unforeseen expenses.
Responsibilities of Buyers and Sellers
During the escrow process, clarifying who is responsible for any supplemental taxes is important. Typically, if the supplemental tax assessment occurs before the close of escrow, the seller is responsible for the payment. If it occurs after closing, the buyer assumes responsibility. However, these responsibilities can vary based on the terms outlined in the escrow agreement. Therefore, both parties should review the agreement carefully and consult with their escrow officer to understand their obligations.
Understanding supplemental property taxes is essential for homeowners and real estate professionals alike. Being informed about how these taxes are assessed and managed, you can navigate the escrow process more effectively and avoid unexpected financial obligations. Always consult with knowledgeable professionals and review your escrow agreements carefully to ensure clarity regarding tax responsibilities.
Key Takeaways
- Beyond regular property taxes, supplemental taxes may be levied following property reassessment due to ownership changes or new construction.
- Supplemental tax bills are often not covered by standard escrow arrangements, requiring direct payment from the homeowner.
- The obligation to pay supplemental taxes depends on the timing of the assessment relative to the escrow closing date and the terms of the escrow agreement.
- Engaging with real estate agents and escrow officers can provide valuable insights into potential supplemental taxes and help in financial planning.
- Anticipate the possibility of supplemental tax bills and include them in your financial considerations when purchasing property.
- California State Board of Equalization. (n.d.). Supplemental Assessments. Retrieved from https://www.boe.ca.gov/proptaxes/supplemental-assessment/
- California Land Title Association. (n.d.). Understanding Supplemental Property Taxes. Retrieved from https://www.clta.org/page/Consumer13
- Escrow Options Group. (n.d.). Understanding Supplemental Property Taxes. Retrieved from https://escrowoptions.com/wp-content/uploads/2020/06/NEW2020_EOG_PropertyTaxes101.pdf
- Glen Oaks Escrow. (n.d.). Supplemental Taxes Explained. Retrieved from https://glenoaksescrow.com/supplemental-taxes-explained/
- Los Angeles County Property Tax Portal. (n.d.). Supplemental Secured Property Tax Bill. Retrieved from https://www.propertytax.lacounty.gov/Home/SupplementalSecuredProperty
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