In California, property taxes are usually only reassessed on sale. There is also an inflation linked increase, but it's capped at a maximum of 2%. So you can end up with people who have been living in houses for 20 or 30 years who are paying an order of magnitude less in property tax than if they'd just bought the same house today. This also means that if you buy a house in a down market then you're likely to save a lot in terms of property taxes. Disclaimer: I am not a tax adviser etc.
At least in CA your property tax is, roughly speaking, based on the last sold price. The lower the price the higher percentage of it is covered by your savings.
It's worth noting that property taxes in California are only re-assessed on ownership change or new construction. There's no downside to having the value of your home balloon as much as possible.
This is area-specific. For example, in Florida (where I've bought/sold 4 houses over the years) property taxes tend to be reassessed to very close to purchase price upon sale, because due to homestead exemptions the taxes haven't kept up with home price inflation. I believe similar happens in California.
Sales reset the property taxes on properties. It was one of a few reasons I didn't buy a home in the Bay Area a few years back. Probably should have, my buddy that bought his house for 500k in the city is sitting on probably 1.2-1.4m now. Not bad for 3-4 years appreciation.
Taxes don’t change on the day to day swings of the properly value of the house. There is a set value and a set rate regardless of the worth of the house. Now it could be every 10 years a city needs to re-assess. So they go and value all the houses then they make a tax rate that gets to what the tax amount will be. So some go up and some go down based on the new value. There are some outliers - your taxes may change if you expand your house under a permit or so some upgrades. If you buy a house and believe its value is too high you can try to argue the total amount to lower the taxes. But nothing automatically is happening that is lowering anyone’s price except a total reassessment of the area. This is how gentrified areas may push people out with high taxes because a reassess changed the total tax amount and then your house may suddenly need to pay substantially more taxes * except in California as they have different laws.
You also have to remember that in CA the assessed value of your home (on which your property tax is based) will never go up more than 2% per year. So while the property tax rate may be higher than some other places, if you stay in your home for more than a few years, the actual amount of property tax you pay will quickly be lower than it would be elsewhere.
Your property tax is tied to the property value at purchase rather than reassessed over time. This, coupled with the enormous growth of CA property prices over the last 70 years, results in existing land owners paying way less taxes than their neighbors. Like 10x less tax is not uncommon.
This creates a ton of really perverse incentives - but an overwhelming one to buy and hold rather than sell or move. So it limits California housing stock.
Sort of. The California property tax bill has many line items, one of which is "General tax rate". That's the one everyone talks about and it is 1% of the assessed value. However, all applicable jurisdictions can (and thus, will) add all kinds of add-on percentage fees to the property taxes and those are not subject to any limitations.
My property tax bill (California) which I just paid two weeks ago, was actually 1.4% of the assessed value.
> that value can only go up 2% a year (i.e. way less than market)
True on average over long term. Good to keep in mind though that it goes up 2% every year regardless of market. So when the market is up double percentages like 2020-2021, it only goes up 2%. But when the housing market crashes, it also goes up 2%. Which is fine, it's basically a damping function so that instead of having the taxes swing wildly up and down year to year, they just go steadily up.
Also be aware that the 2% increase is on the "general tax rate". The additional fees which are included in the property taxes, those have no cap on increase rates.
There have been many years when my property taxes have gone up quite a bit more than 2%.
I feel that because the housing market has been on such a long bull run, people have either forgotten, or are too young to have experienced, that housing markets can also crash hard. Having an increased zestimate value of your home is not actual wealth unless you sell it, and the valuation on paper can evaporate any moment when the next housing crash comes. I've been through three market crashes in my current house, two of which left me underwater for a few years.
Not sure how it works in every state, but my property taxes are liable to increase year to year, for a home I own. Are you saying this is not the case in California? They just true up property taxes for a property upon next sale?
> when real property is purchased, the county assessor assigns it an assessed value that is equal to its purchase price, or “acquisition value.” Each year thereafter, the property’s assessed value increases by 2 percent or the rate of inflation, whichever is lower. This process continues until the property is sold, at which point the county assessor again assigns it an assessed value equal to its most recent purchase price. [1]
If you have owned your home for awhile, your property taxes are not changing that much. Your assessed value starts with the purchase price and increases, at most, 2% each year. This house[2] listed on Zillow is a great example. It sold in 1973 for $32K. For the passed 40 years they've been paying property taxes based on the $32K plus ~2% increase each year (I'm not sure how far back that 2% max increase goes). In 2013, the assessed value was still down at $72K... meaning $997 in property taxes. That same year the house was sold for $875K. Now the assessed value resets to market value and the new property taxes will be like $11k rather than the previous year's $1K. So even though the housing prices skyrocketed around them, the previous owner of the house wasn't really effected by that increase.
California homeowners pay property tax and the rate goes up either with inflation or 2%. I'm guessing you think it should go up with the market value of the home. Thank god it doesn't or I would have had to sell instead of being able to give my kids a stable home for the past 18 years.
That depends on what state you live in. CA property taxes can't go up by more than 2% (or thereabouts - the specifics don't matter) per year, and aren't pegged to the actual current value of your home.
> That can still happen with today's real estate taxes
Not in California. The maximum annual increase in assessed property value is 2%, and property tax is limited to 1% of assessed value. This only changes when the home is sold.
It's pretty unlikely for anyone to be forced out of their homes because of property tax increases.
There is a limit to the extent which the higher property taxes are tolerable and most people aren't really investors. However, as I understand it (I am on the East Coast), in California's case your property tax is actually locked in at the time of purchase regardless of appreciation.
The assessed value is based on recent sales of similar comps.
If you bought your house for $50k in 1979, of course you want it to be based on the original price. In CA, the assessed value can only go up by 2% a year. But if I buy your house today for $1.2m, then I am going to be paying $1,000/month in property taxes. And if you want to move across town, or even downsize a little to that $800k condo, well, then you are going to lose that low low property tax rate.
Which is one of the reason there is a housing shortage. People don't want to upgrade or downgrade or otherwise sell. They just figure out ways to give it to their children or rent it out and keep the low tax rate locked in.
California caps how much property tax can increase each year unless there is a change in ownership. My mom pays $4k/yr in property tax for the house I grew up in, which is currently worth $2M.
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