Real estate taxes
The Street Improvement Act of 1911:
A law used by cities and counties for street improvements. A typical example of this is that the local government hires a contractor to improve streets, and then each owner along that street is liable for paying a pro rata share of that cost. The owner might either pay the contractor in full within 30 days, OR the local government might sell bonds to raise revenue to pay the contractor.
The Mello-Roos Community Facilities Act of 1982: The Mello-Roos Community Facilities Act of 1982:
A law used to finance public services, such as waste treatment plants, parks, and schools, in newly developed areas. This can result in extra-high taxes, in addition to the normal property taxes, and MUST be made known to any buyer before a purchase takes place.
Special Assessment Taxes:
A tax or levy imposed by a city, county, or state only on those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or a sewer. These taxes are usually assessed by frontage foot and are always paid before general taxes and first deed of trust in case of a foreclosure. These taxes must also be paid before the property can be transferred, unless there is an agreement in writing otherwise. This is not the same as a special assessment required by subdivisions as required by restrictions and covenants.
There are two types of real estate taxes.
Both are levied against specific parcels of property and automatically become liens on those properties. Taxes need not be recorded to be valid!
Here are some additional taxes in California:
Documentary Transfer tax, which is levied upon the transfer of real estate, at the rate of $0.55 per $500.00 of consideration, or fraction thereof. Estate and Inheritance tax. While the federal government sometimes taxes the estates of deceased persons, California has ELIMINATED inheritance taxes altogether. Gift taxes apply to the voluntary transfer of property from the owner (donor) to the receiver (donee). As with estate taxes, even though California does NOT tax gifts, the federal government does. Miscellaneous taxes, including sales and use taxes (used in the sale of a business opportunity or mobile home).
Income Tax Withholding
Employers must provide all employees with W4 forms. Employers must file with the IRS a Form 941. The wage and tax statement for all employees showing the total wages paid and amounts withheld during the year is called a Form W2. The form given to Independent Contractors is called Form 1099. While we are discussing forms, the IRS has form #8300, which is used if a consumer pays $10,000.00 or more in cash towards a transaction. That sum must be reported to them.
Mobile Home Taxation
In California, both mobile homes and manufactured homes are subject to local property taxation under certain circumstances. There are four principal prerequisites for transforming a mobile home into real property: Obtaining a building permit; Attaching the mobile home to an approved foundation; Recording a document reflecting that the mobile home has been affixed to an approved foundation system; and Obtaining a certificate of occupancy. A mobile home installed on a foundation system is considered a fixture or improvement to the real property. Note that provides the "base year value" of a mobile home converted from the vehicle license fee to local property tax is its full cash value on the LIEN DATE for the fiscal year in which it has been enrolled. Once the mobile home has been attached to a foundation, the Department of Housing and Community Development (HCD) must cancel the registration. The next step is recording the title with the county recorder, which transfers the ownership.
Property Taxes and Proposition 13.
Let's take a look first at Proposition 13 limits the maximum annual tax on real property at 1% of market value, PLUS the cumulative increase of 2% in market value each year after, due to the annual inflation factor. This means that rather than using a pure ad valorem system, the property taxes in California are now levied using a system that is based on the date of acquisition. Under Proposition 13, if there hasn't been a change in ownership since March 1, 1975, then the 1975 value is considered the "initial cash value" needed to figure out the annual taxes, as explained above. If there has been a new owner since March 1, 1975, then the new owner's "full cash value" for the purposes of taxes is the sales price, OR the value of the property on the date of the transfer. (In this case, a supplemental tax bill would be sent to the new owner.) In other words, whenever there is a change in ownership, the full cash value for tax purposes is adjusted to the CURRENT market value of the property. Note that the new owner often ends up, as a result of this regulation, paying DRAMATICALLY more real property taxes than the previous owner was paying.
Mills
Mills (one mill = 1/1000th of a dollar or .001)
California Property Taxes
Property taxes and subventions represent the largest single source of income for local governments. In California, about HALF of the state's one hundred million acres are owned by governments. This means they are exempt from property taxation.
Taxation Specifics
Taxes = Assessed Value/$1.00 rate Assessed Value =Market Value | % rate
California State Income Tax
The income tax laws favor homeowners over renters by allowing several income tax advantages to persons who become homeowners. In California, income tax is a progressive tax, which means that the federal and state tax rates increase with income level increases. California income tax law is patterned after federal tax laws, but there are a few differences between the two. The following regulations apply to income taxes in California: The tax brackets for individuals and corporations are different for state income tax purposes than they are for the purposes of federal income taxes. There are special rules regarding new residents and their need to file their California income tax statement. The impact of federal income taxes is more important than that of state taxes.
California Homeowner's Exemption and Military Exemption
Under Section 218, an owner-occupied residential dwelling is entitled to a $7,000.00 DEDUCTION from the full appraisal value. (This also applies to an owner-occupied unit in a multiple unit residential structure, an owner-occupied condominium, cooperative apartment, or unit in a duplex). To claim this California Homeowner's Exemption, a person must have been the owner and lived in the home on or before January 1, and must file for the exemption with the assessor's office by February 15. Once claimed, the homeowner's exemption remains in effect until the title is transferred or the exemption is terminated by the owner. The bottom line savings from the Homeowner's Exemption is $70.00 (take the $7,000.00 x 1% tax = $70.00). Section 205 provides for a California resident who has served in the military during war time an exemption of up to $4,000.00 of full value of the property. This applies to property owned by qualifying veterans or the unmarried spouses of deceased veterans. This exemption results in a tax savings of up to $40.00. This exemption may NOT be applied to a property on which the homeowner's exemption has been successfully applied. Under Section 205.5, upon the death of an eligible veteran, the exemption rights are extended to EITHER the unmarried spouse OR the pensioned father or mother of the veteran. Note that there are also special rules for disabled veterans. In some cases, depending on a veteran's income and extent of disability that has resulted from injury or disease incurred during military service, a disabled veteran may receive an exemption of $40,000, $60,000, $100,000, or $150,000 of the full cash value of his/her residence. A veteran may contact either the California Department of Veterans Affairs or the county assessor for more information regarding the disabled veteran's exemption. In some cases, a disabled veteran may not be required to pay ANY property tax. In California, there are special laws that allow a partial OR FULL refund of property taxes for certain senior citizens. In addition to this, the California legislature has passed laws that allow certain senior citizens to defer the payment of property taxes due to the county and city. The regulations that concern senior citizens and property taxes change frequently; so always contact the local tax assessor for current information.
General Tax:
Used for the general operation of the governmental agency authorized to impose the tax. These taxes are called "Ad Valorem." The words "AD VALOREM" are Latin for "according to valuation," usually to a type of tax or assessment. Real property tax is an Ad Valorem tax based on the assessed valuation of the property. Each property bears a tax burden proportionate to its value, as opposed to a specific tax per unit based on quantity, such as a tax per gallon of gasoline or package of cigarettes.
Free Rent and FICA Contributions:
When computing income for federal tax purposes, managers must indicate wages paid in any form other than money at their fair market value. Included in this category are automobiles furnished to employees and living quarters provided for on-site managers. A qualified accountant or attorney must determine the proper treatment of any item of compensation given to an employee in lieu of salary. Different treatment and amounts are applicable depending on the item and circumstances in each case. Under current regulations, the fair market value of living quarters furnished to a manager at the place of employment is NOT TAXABLE to the employee, if the employee is required to reside on the premises as a condition of employment.
Proposition 90
follows the same general idea, but allows the privilege to be applied to a home purchased in ANOTHER county, IF that county's Board of Supervisors CHOOSES to apply Proposition 90.
Real estate is ASSESSED
for tax purposes by county assessors or appraisers. An assessment is an official valuation of real property for tax purposes based on appraisals by local government officials. Sale prices of comparable land are used to estimate land values, whereas building values are based on an amount representing the improvement's replacement cost less depreciation. Occasionally one county or another is out of line with others in the state in real estate taxes. When this is the case, an Equalization Factor is multiplied times the taxes to make the rate more equal to the rest of the state.
Under Proposition 60
homeowners 55 years of age and over are allowed to transfer their base-year property tax value to another home of equal or lesser value in the same county and keep their low assessment from their former home.
Real property tax becomes a lien
on the January 1 that precedes the fiscal tax year. This tax can be paid in two equal installments, with the first installment due November 1 (delinquent by December 10, or the following business day by 5:00 p.m. if December 10 falls on a holiday or weekend); and the second installment due February 1 (delinquent by April 10, or the following business day by 5:00 p.m. if April 10 falls on a holiday or weekend). Or, if the taxpayer prefers to make a single payment, then both installments may be paid when the first installment is due (November 1). Should an owner fail to pay his property taxes when they are due on June 30, then the tax collector will publish a notice of "intent to sell" the property to the state of California because of these unpaid taxes! This is not a REAL sale, however; it is known as a book sale. In a book sale, the property owner still owns the real estate, but the owner's name is entered into a delinquent account book, and this begins a 5-year period of redemption. During this 5-year period, the owner can redeem the property by paying all back taxes, interest, penalties, and any other applicable fees. If the CURRENT taxes are paid on time, then the delinquent taxes may be paid in 5 annual installments. If, after 5 years, the taxes remain unpaid, the delinquent property reverts to the state, and the former owner loses the title. A seller or his or her agent is required to deliver to the prospective purchaser a disclosure notice that includes both of the following: 1102.6c. (a) In addition to any other disclosure required pursuant to this article, it shall be the sole responsibility of the seller of any real property subject to this article, or his or her agent, to deliver to the prospective purchaser a disclosure notice that includes both of the following: 1. A notice, in at least 12-point type or a contrasting color, as follows: "California property tax law requires the Assessor to revalue real property at the time the ownership of the property changes. Because of this law, you may receive one or two supplemental tax bills, depending on when your loan closes. The supplemental tax bills are not mailed to your lender. If you have arranged for your property tax payments to be paid through an impound account, the supplemental tax bills will not be paid by your lender. It is your responsibility to pay these supplemental bills directly to the Tax Collector. If you have any question concerning this matter, please call your local Tax Collector's Office." 2. A title, in at least 14-point type or a contrasting color that reads as follows: "Notice of Your 'Supplemental' Property Tax Bill." Keep in mind that including the required information in the Mello-Roos disclosure may satisfy the disclosure notice requirements of this section. Supplemental taxes may be assessed whether a new loan is obtained or an existing loan is assumed to accomplish the purchase of the property, or whether the property is purchased without financing.
The Federal Insurance Contributions Act (FICA)
provides for social security retirement fund taxation to be paid by employers of one or more persons. The rate of tax is set by Congress and shared by the employer and employee. The employer must withhold the proper amount from employees' paychecks and submit the total contribution from both parties to the federal government. The frequency of payment varies with the amount of the contribution. Check the latest regulations available from local social security offices. When computing the FICA payment due, compensation other than wages (including a free apartment) must be shown as income at fair market value.
Regarding new construction since March 1, 1985,
the "full cash value" for tax purposes is the real estate value at the time of completion, plus the inflation factor of 2% per year, cumulatively to the present year. Even adding improvements to a person's existing home will affect the tax bill, because even though the person's home keeps its present full cash value as shown on the tax records (prior to the improvements), the NEW improvements are then valued separately as of the date of completion. Again, BOTH of these figures are adjusted by the 2% inflation factor/value increase, and the total of these amounts equals the full cash value of the property for tax purposes.
