Wedded to Your Property: Property Taxes in San Francisco
Apart from changing over utilities, setting up move dates and picking paint colors, you now have the joy of being a fully vested San Francisco property tax payer. You are now joining the other folks who pay more than $2 billion to the City every year. For years the City was using a COBOL-based computer system to keep track of your tax obligations — COBOL was a vintage 1960s OS where such features as ‘copy’ and ‘paste’ were unheard of. But the City recently spent millions to upgrade and update to something more modern. Combine that with unfettered access to MLS data, property tax collection efforts have become more efficient and faster, with reassessment efforts also rising (which is when the City thinks your property sold for too cheap or is worth more than it is. While you can challenge those reassessments, you will have to pay taxes when they’re due — April 10 and December 10 of every year, otherwise you will incurr a 10 percent penalty
Property taxes in one of the most expensive and tech-forward markets in the country are not terribly current. There’s lag built into the system when you first purchase, when you remodel, and if you bought new construction or flipped a house, when you sell. Moreover, even though real estate taxes could be a lucrative revenue source (indeed it was until the late 1970s in California, things like Proposition 13 cap on annual inreases and reassessments to no more than 2 percent a year (unless you remodel). Other mechanisms like Prop 19 will at to limit reassesments between familial generations.
Some Q+As
What is your initial property tax assessment basis?
As an intial matter, your tax basis is your purchase price because that is usually considered a property’s fair market value. There are times when the Assessor Office staff will think otherwise (as our clients will tell you) to which you can challenge. The date the new basis comes into effect is the day we close on it. Start budgeting for this amount, which is usually just over 1 percent of your purchase price (see below). Your obligations start the day you close on the purchase and because of the lag we talked about above (and because tax statements are only issued once and payable twice a year), thie first your tax bill you get will likely have a due amount different than what you and title company have determined. Before you think you’ve gotten away with something (like the City didn’t notice your sale?!), remember that the Assessor–Recorder’s office is slow in updating their records even with their new system. Just keep in mind that you will be getting more bills (see below), which is especially true if you remodel.
How much are my San Francisco Property Taxes?
When there is a change in ownership – like a home sale – the Office of the Assessor–Recorder will issue a new assessment based on that sale price in most cases. That amount will be combined with any parcel assessments for schools or BART or otherwise.
What happens when they catch up to you and your purchase? (The Supplemental)
One day after you close and as you settle in your new property, you’ll get an ‘important notice’ from the Assessor. This is the day your Supplemental Tax statement arrives. That statement should list your close date and the difference between what you now owe and what the previous owners paid. You’ll have up to 90 days to pay the difference but the deadline may be shorter based on when the Assessor gets around to it.
When can I expect my Supplemental Tax bill?
Anywhere from two months to two years after you close and you may get more than one when they arrive. Take precautions if you’re flipping or selling quickly after you buy.
What are my taxes paying for? What have current rates been?
There are loads of tax obligations that are tied to your property's value so you'll have to check your preliminary title report about which apply. Some areas of the City and state require extra fees under Mello-Roos while other areas have incentive programs that limit taxes like the Mills Act. The usual destinations for additional assessments are educational institutions, e.g., San Francisco Unified School District, City College etc.
Then you may have taxes because your property sits in a 'special use' district (you'll see these indicated as Mello-Roos Districts) for certain neighborhoods for various improvements located within the district. And don't forget all those City bond initiatives can add up too.
Annual increases to San Francisco property tax rates have hovered around 1.17%-1.18% for the past few years. For more, check the following link: https://sftreasurer.org/property-taxes
Recent Annual Rates:
2020-2021: 1.19846368%
2019-2020: 1.1801%
2018-2019: 1.1630%
2017-2018: 1.1723%
2016-2017: 1.1792%
2015-2016: 1.1826%
2014–2015: 1.1743%
2013–2014: 1.188%
2012–2013: 1.1718%
2011–2012: 1.1718%
2010–2011: 1.1640%
2009–2010: 1.1590%
2008–2009: 1.1630%
2007–2008: 1.1410%
Can I deduct property taxes I pay?
For federal returns, until the latest Trump tax plan, amounts you paid in property taxes were deductible. Under the Trump regime, there was a cap on non-federal deductions of $10,000, which meant that state income taxes usually exceeded local property taxes. Watch this space starting in 2021 to see if this gets changed.
Do I have to pay monthly property tax impounds?
Certain lenders and certain HOAs (mainly TIC HOAs) may require you to pay property taxes along with your HOA dues each month. Usually this money is held in an escrow account to pay taxes starting in February and in November of each year as you can’t pay taxes early. Be sure your entity does do this as you don’t want end up with a late fee.
Escape Taxes and Set Asides
With all the new construction in the City and the speed of flips it’s more than possible where someone buys a property and sells it before having to pay any property tax at all — where a previous owner’s tax bill was next to nothing or, was in fact, nothing. It’s in these situations where a seller owns a property with little or no preexisting tax assessment that the escrow company may either hold ‘escape tax’ monies after their final reconciliation with a credit to the buyers or the parties will expressly agree that the seller will pay the bill when it comes due. And if you bought your home for less than the assessed value on file, you will still have to pay the bill amount but rest assured that, one day in the distant future, you’ll get a credit for any ‘overpayment.’
A Summary
Your property tax basis is usually based on the recorded sale price
Your property taxes begin the day we close but your actual bill may not reflect that amount
The title company will prorate everything accordingly and you may get a credit back at close
The City will send you a supplemental tax bill to capture the difference between the previous assessed basis and your sale price — don’t think they missed something, they didn’t. You can’t pay this supplemental amount early but budget as if you were paying from day 1
Property taxes are due twice a year (February and November) but you may only ever get 1 printed statement
Only pay amounts printed, don’t over or underpay or the whole amount may get dinged
Your property tax bill amount changes each year but Proposition 13 caps any assessment increase to no more than 2 percent over a previous year unless you remodel your property
If you’re over age 55 and purchasing another home you should be able to bring along your tax basis in large part
If you remodel your home you’re required to file permits with the City, upon which the Assessor will recalculate your property’s basis (but the increased value is usually limited to the work’s value and not the resulting boost in market value)
You can petition the City to reassess your property tax basis
If City doubts a property’s sale price, it might seek to adjust it to a ‘fair market value’
Late penalties start at 10 percent
If you fail to pay your property taxes for 5 years, you will not only face property tax liens but the risk of a redemption sale (i.e., tax sale)
Remember, your property is different and there may be a whole lot particulars at play. This is a long way of saying that if you have questions, feel free to ping us and we'll see how we can help or direct you to someone who can.
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Kevin K. Ho, DRE 01875957/SBN 233408
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Vanguard Properties
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