Property Taxes in California: What You Should Know

In many states, calculating property taxes is straight forward: It's often a simple equation of your assessed property value and established tax rate. But in California, property taxes can be far more complex.

In recent decades, numerous laws have been enacted that mandate property tax rules in the Golden State. One of those laws was Prop. 19, a statewide ballot measure passed by voters in November 2020 that went into effect Feb. 16, 2021.

“Prop. 19 changed several tax rules, but the biggest impact is on high-net-worth families who have a crown jewel asset – their home – that they want to leave to their family," said Nichole Walker, a senior wealth planner at City National Bank. “Prop. 19 eliminated the exclusion that allowed children to inherit their parents' home at the parents' tax assessment."

 

Why Did My Property Taxes Increase in 2024?

California property taxes increase every year at a maximum rate of 2%, so you can expect a slight increase on an annual basis. The specific changes to property tax in 2024 are detailed below.

What Are California Tax Assessments?

Property taxes typically are based on a property's assessed value rather than its current fair market value. In most states, tax assessments are conducted every one to five years and are not changed when a property is sold or transferred as a gift.

In California however, laws have been passed that limit the tax-assessed value over time, Walker said.

“In 1978, California voters approved Prop. 13, a state constitutional amendment known as 'The People's Initiative to Limit Property Taxation' that was meant to protect older residents who were unable to keep up with large property tax increases," Walker said. “Several propositions since then have tinkered with property taxes."

Homeowners who plan to transfer their residence to their children now, or as part of their inheritance, should seek professional advice so they understand the impact of current property tax rules.

Those rules are significant for some families, given California's property values and how they've changed over recent decades. It's not that unusual in California to have a house that was assessed at $150,000 when it was purchased to be worth $5 million 40 years later.

Before Prop. 19, when children could inherit their parents' house at the assessed value of $150,000, the property taxes would have been approximately $1,500. Now, if the house is assessed at current market value of $5 million, they would obviously incur a significantly higher tax bill.

 

California Property Tax History

A quick history lesson about previous tax laws is helpful to understand the full implications of Prop. 19 and any future property tax changes.

In 1986, California voters approved Prop. 58, which permitted inheritors to keep the tax-assessed value of the grantors, who are generally parents or grandparents. In combination with Prop. 13, this meant that children could be gifted or inherit their parents' home, which had appreciated in value considerably, while continuing to pay property taxes at the lower assessed rate of the parents.

In addition, the inheritors were not required to live in the home and could keep it as an investment property. The rules also allowed parents to transfer up to $1 million per spouse or $2 million total in assessed value on additional properties without having the tax bill change.

Prop. 60 and Prop. 90, passed in 1986 and 1988 respectively, allowed a person over the age of 55 to sell their principal home and transfer its base-year value to a replacement dwelling of equal or lesser value within two years after the sale. These are important rules to understand for people who are thinking about downsizing their homes later in life.

Prop. 58 expired in 2021, however, and is now replaced by Prop. 19, which changes the property tax treatment of an inherited home. Today, kids who are gifted a house, or who inherit a house, must live in the property to benefit from property tax exclusions, and those tax benefits are now capped. Heirs will be able to pay property taxes on the current assessed value and exclude up to another $1 million in assessed value. Any currently assessed value above that amount would be taxable.

Additionally, any property transferred to heirs that is not classified as a primary residence will be assessed based on current fair market value.

 

Proposition 19

While the tax assessment exclusion for inherited property could have a negative impact on some high-net-worth families, another tweak to property taxes made by Prop. 19 expands tax benefits for people 55 and older.

“Prop. 60, which passed in 1986, allowed homeowners over age 55 who wanted to sell their home and move to another house of equal or lesser value in the same county to take their tax assessment with them," said Walker. “The idea was to make it easier for seniors to move without worrying about a huge jump in their property tax bill that might be difficult for them to pay."

For example, if someone over 55 sold a house for $5 million, but they were paying taxes on a lower assessed value based on their original purchase price, they could buy a new house for $2 million and still pay taxes at their original, lower tax assessment.

Prop. 19 expands this benefit further.

The new rules allow people to move to any county in the state, not just within their own county, and take their assessment with them. The new house can even be more expensive than the one they sell, and homeowners over 55 can transfer their tax assessments three times.

Prop. 19's rules for homeowners 55 and older also apply to people with severe disabilities and to people who lost their homes due to a natural disaster or catastrophe, such as a wildfire or earthquake.

“Prop. 19 is highly attractive for eligible homeowners who want to sell their existing primary residence and move to another residence in the state without incurring a higher property tax bill," said Walker.

It is important to keep in mind, however, that the new law comes with significant limitations for children inheriting real property from their parents.

If you own a primary or secondary property that you intend to transfer to your children as an inheritance or gift, it is crucial to speak with your financial advisor and estate planning attorney about strategies designed to mitigate the limitations of the new law.

 

Important Information on Property Taxes

If you own, plan to purchase or stand to inherit property in California, it's important to understand the details of the Golden State's property taxes.

Here are some answers to commonly asked questions about California property tax:

How Are Property Taxes Calculated?

Property taxes are calculated based on the purchase price of the property. In California, the purchase price equals the assessed value. This value can increase every year but is capped at 2% annually.

How Many Times a Year Do You Pay Property Taxes?

According to the California State Board of Equalization, California property taxes are due two times per year. Property owners may make both payments at once or pay in two installments.

The first installment payment is due on Nov. 1 and becomes delinquent on Dec. 10. The second installment payment is due on Feb. 1 and becomes delinquent on April 10.

What Happens if You Miss a Property Tax Payment?

If you miss a property tax payment, you will incur fees. In California, you typically have five years to become current on delinquent property taxes. At that point, you could lose your property in a tax sale.

Is CA Property Tax Based on the Purchase Price?

In the state of California, the assessed price is equal to the purchase price. After a property is purchased, the property assessment may increase annually, but no more than 2%.

Why are CA Property Taxes So Low?

Relative to other states, California property taxes are lower because of Prop. 13's limit of 2% on annual increases.

As always, you should consult with your tax advisor and California's official property tax pages with any questions and concerns you have about your property tax liability.