Under California law, local governments are allowed to levy property taxes on real estate assets such as land, buildings, and other structures. Local officials use various factors, such as the size and condition of the property, its location, and its current market value, to assess the property’s value. They then base the property tax on this assessed value. You can challenge that assessment, as discussed in this post
Property taxes are one of the main sources of revenue for local governments, and they are used to fund a multitude of public services such as schools, parks, roads, and other infrastructure. The county calculates the amount of property tax that goes to each public agency. The property tax is levied as a percentage of the property’s assessed value.
As you might guess, property taxes can vary widely depending on where you live. Texas, for example, has a high property tax because it does not charge a state income tax. Each local government has its own tax rate and assessment methodology. Property tax rates can change over time based on changes in the local economy, government spending priorities, and other factors. Many school boards, for example, have initiated bond measures. If the measure passes, the school board issues bonds and receives a lump sum payment, often for capital infrastructure projects. Then the bonds are paid off with revenue captured in your property taxes.
Tax Breaks, Exemptions, Penalties
The California Revenue and Taxation Code allows homeowners an exemption in the form of an annual $7,000 reduction in the taxable value of a qualifying owner-occupied residence to compute the annual property tax assessment. If you have a 1% property tax rate, the exemption would provide $70 in annual property tax savings. So don’t go jewelry shopping just yet!
The home must have been the owner’s principal residence as of January 1 of the tax year to qualify for the homeowners’ exemption. A new owner should receive an exemption claim form in the mail from the county. To obtain the entire exemption, an owner must file by February 15. If you file the form after February 15 but before December 10, you will receive 80% of the exemption, roughly $5,600, for that year. Once in place, the homeowners’ exemption remains in effect until the title to the property changes or the owner no longer occupies the house as their principal place of residence.
Non-profits that provide services to the entire community for religious, hospital, scientific or charitable purposes, may be eligible for exemption from property taxes. They need to be registered as a tax-exempt business with the Internal Revenue Service (IRS) and California. This exemption is not automatic and is similar to the homestead exemption. You must file the claim for exemption in the county where the property is located between January 1st and February 15, or according to local rules, to receive the full exemption for the applicable year.
There are many other exemptions and modes of tax relief, such as the veterans’ exemption, Mills Act, disaster relief, and decline-in-value, and we are happy to discuss those with you. When your home declines in value, the assessment should too. If you believe that your county official has not decreased your assessed value sufficiently, please come talk to us. These decisions are partly case by case, and there are many factors that come into play.
The IRS allows you to deduct property taxes from your income tax. State and local property taxes is one of the four types of deductible non-business taxes the IRS allows. The others are foreign income taxes, state and local general sales taxes, and real estate taxes. As an individual, your deduction of state and local income, sales, and property taxes is limited to a combined total deduction of $10,000 ($5,000 if married and filing separately).
To be deductible, the tax must be imposed on you, and you must have paid it during your tax year. Deductible real estate taxes are generally any state or local taxes on real property levied for the general public welfare. The charge must be uniform against all real property in the jurisdiction at a like rate. Nonbusiness taxes may only be claimed as an itemized deduction on Schedule A (Form 1040), Itemized Deductions. You may be subject to a limit on some of your other itemized deductions also.
Other related taxes and fees you can’t deduct on Schedule A include federal income taxes, social security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner’s association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection.
When Do I Need an Attorney
Generally, you need an attorney if there are significant assets involved and complex legal and tax questions. If you are concerned with minimizing tax liability in the short and long term, seeking legal advice now can save you significant tax losses. If you are being charged with criminal law violations for underpaying or not paying taxes, an attorney can be invaluable. He or she can protect your rights and minimize the potential penalties that you face.
No One Likes Paying Taxes, So We’ll Make Sure You Don’t Overpay
Our lawyers and staff are passionate about lowering tax liability and manage this task enthusiastically and professionally. We have counseled many clients on these and other essential matters. We are happy to assist by answering your questions, providing legal advice, and examining your tax and real estate structures and goals. We are delighted to take action to help advance you toward those goals. Call the trusted attorneys at Lowthorp Richards at (805) 981-8555 or fill out our online contact form. We operate primarily in the Tri-Counties area – Ventura, Santa Barbara, and San Luis Obispo.