How Do Property Taxes Work Property Taxes Simplified: Key Dates, Tips, and What You Must Know

Understanding Property Taxes: What Every Homeowner Needs to Know

Whether you like it or not, as a property owner, paying your dues—especially property taxes—is unavoidable. Property taxes are crucial, and as a homeowner, it's important to understand when they're due and how they are calculated. Let's dive into the details of property taxes, so you're well-prepared for both your real estate career and homeownership journey.

When Are Property Taxes Due?

Property taxes are due twice a year. Here's a simple way to remember: No Darn Fooling Around (NDFA). This phrase will help you recall the important dates:

• N (November 1st) – The first installment of your property taxes is due.
• D (December 10th) – Taxes are considered late after this date.
• F (February 1st) – The second installment is due.
• A (April 10th) – The second installment becomes delinquent if unpaid by this date.

Just like Uncle Sam says: no darn fooling around when it comes to paying your property taxes!

How Are Property Taxes Calculated?

Now that you know the payment schedule, let’s talk about how property taxes are calculated. Property taxes are based on a system called ad valorem, which means "according to value." This means that your taxes are determined by the value of the property you own.

For instance, if you purchase a property for $1 million, the property tax rate in California generally ranges between 0.6% and 1%. However, to play it safe, real estate professionals often advise clients to expect up to 1.25%, as local taxes can be added on top of the county property tax.

• For a $1 million property, the calculation would look like this:
  $1,000,000 x 1% = $10,000
  So, the homeowner would be expected to pay around $10,000 annually in property taxes.

Historical Property Values and Proposition 13

What if property values skyrocket? Won’t the taxes follow suit? This could present a real issue, especially for long-term homeowners whose incomes may not keep pace with rising property values.

Let’s take a historical example. A homeowner who bought a house in 1970 for $20,000 would have paid approximately $200 per year in property taxes at that time. Today, that same property could be worth $5 million, meaning the homeowner would be expected to pay $50,000 annually in taxes—an enormous increase!

But here’s where California’s Proposition 13 comes to the rescue. Passed in 1978, Proposition 13 prevents property taxes from increasing by more than 2% annually, no matter how much the value of the property increases. So, that homeowner who was originally paying $200 in 1970 might now pay $204 the following year and continue to see only modest increases over time, despite the property’s soaring value.

This proposition ensures that retirees and long-term homeowners on fixed incomes aren’t forced to sell their homes simply because they can’t keep up with the rising tax burden.

The Bottom Line

While property taxes may seem like a mundane topic filled with numbers, they are an essential part of homeownership. Now, when you discuss property taxes with your clients or encounter them yourself, you'll be ready to tackle the subject with confidence. Remember the key dates—November, February, and April—and the role of Proposition 13 in protecting homeowners from excessive tax increases.Understanding Property Taxes: What Every Homeowner Needs to Know

Whether you like it or not, as a property owner, paying your dues—especially property taxes—is unavoidable. Property taxes are crucial, and as a homeowner, it's important to understand when they're due and how they are calculated. Let's dive into the details of property taxes, so you're well-prepared for both your real estate career and homeownership journey.

When Are Property Taxes Due?

Property taxes are due twice a year. Here's a simple way to remember: No Darn Fooling Around (NDFA). This phrase will help you recall the important dates:

• N (November 1st) – The first installment of your property taxes is due.
• D (December 10th) – Taxes are considered late after this date.
• F (February 1st) – The second installment is due.
• A (April 10th) – The second installment becomes delinquent if unpaid by this date.

Just like Uncle Sam says: no darn fooling around when it comes to paying your property taxes!

How Are Property Taxes Calculated?

Now that you know the payment schedule, let’s talk about how property taxes are calculated. Property taxes are based on a system called ad valorem, which means "according to value." This means that your taxes are determined by the value of the property you own.

For instance, if you purchase a property for $1 million, the property tax rate in California generally ranges between 0.6% and 1%. However, to play it safe, real estate professionals often advise clients to expect up to 1.25%, as local taxes can be added on top of the county property tax.

• For a $1 million property, the calculation would look like this:
  $1,000,000 x 1% = $10,000
  So, the homeowner would be expected to pay around $10,000 annually in property taxes.

Historical Property Values and Proposition 13

What if property values skyrocket? Won’t the taxes follow suit? This could present a real issue, especially for long-term homeowners whose incomes may not keep pace with rising property values.

Let’s take a historical example. A homeowner who bought a house in 1970 for $20,000 would have paid approximately $200 per year in property taxes at that time. Today, that same property could be worth $5 million, meaning the homeowner would be expected to pay $50,000 annually in taxes—an enormous increase!

But here’s where California’s Proposition 13 comes to the rescue. Passed in 1978, Proposition 13 prevents property taxes from increasing by more than 2% annually, no matter how much the value of the property increases. So, that homeowner who was originally paying $200 in 1970 might now pay $204 the following year and continue to see only modest increases over time, despite the property’s soaring value.

This proposition ensures that retirees and long-term homeowners on fixed incomes aren’t forced to sell their homes simply because they can’t keep up with the rising tax burden.

The Bottom Line

While property taxes may seem like a mundane topic filled with numbers, they are an essential part of homeownership. Now, when you discuss property taxes with your clients or encounter them yourself, you'll be ready to tackle the subject with confidence. Remember the key dates—November, February, and April—and the role of Proposition 13 in protecting homeowners from excessive tax increases.