What's New in California Property Taxes

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December 31, 2012 — 977 views  
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California Property Tax Oversight Corrected

Property taxes in California represent one of the highest tax responsibilities of residents. In some communities, property taxes are as high or higher than income taxes. It is important for home owners and land owners to pay close attention how property taxes are calculated so that they aren't hit with a big surprise come tax time. Legislation in 2011 has caused some changes in how property taxes are figured for California residents.

Property Tax Basics:

Property taxes are based off the value of the real estate being assessed. The appraisal amount of a home or lot is the principal factor in this assessment. There are multiple factors which may determine a home's appraisal value.

California established Proposition 13 in 1978 to create a baseline for property taxes. This is commonly called the “one-percent tax” because it charges taxes based on one-percent of the property's appraisal value. The one percent tax is the largest of the property taxes on a bill, but there are several others. Many of the additional taxes are voter-approved by local area and may vary from county to county.

A complete understanding of a tax bill can be found on this page: (http://www.lao.ca.gov/reports/2012/tax/property-tax-primer-112912.aspx)

Property Tax Deductions:

Due to an extreme and prolonged budget crisis, California is analyzing its taxation system to remove loopholes or oversights that were lowering the tax base. The collapse of the housing market caused a plummet in home values. Of course, this caused an equal plummet in property tax revenues. In an effort to retain as much revenue as possible, the California Franchise Tax Board (FTB) has narrowed its sights on real estate tax deductions. In 2011 it discovered a significant loophole.

The deductible tax amount on a tax bill is usually based on appraisal tax or the large one-percent tax. Smaller local taxes such as Mello Roose taxes and voter-approved taxes were not supposed to be factored into the deductible amount. Due to an overall lack of education, the general public didn't draw any distinctions between deductible and non-deductible taxes on their bills. They simply and logically put down the entire amount of the bill as the deductible amount. Since it was difficult for the state to determine the difference on tax returns this was generally overlooked unless the resident provided a copy of their tax bill with the return. Since this isn't required, most residents did not.

The FTB and IRS are now revising their tax forms and requiring residents to put down additional financial information related to their appraisal values and tax bill. This will allow the state to realize the distinction in deductibles. Education programs are being released to advise residents of the changes and help them enter correct deductible amounts on their returns.


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