In the first year of home ownership, most home buyers will receive a Supplemental Tax bill. For California Veterans who used VA financing and have their taxes paid from their impound account, receiving a Supplemental Tax bill causes confusion. “Shouldn’t the supplemental tax bill be paid from the impound account?”. In many case, the answer is “no”. This is why it is important to understand what the Supplemental Tax is and to be prepared for it.
How Assessed Values and Tax Bills are Calculated
A home owner’s property taxes are based off of the home’s assessed value when it was purchased. In most cases, the assessed value is the actual purchase price of the home, less exemptions. 100% Disabled Veterans can get their assessed value lower by between $126,380 and $189,571 by applying for the Disabled Veterans Exemption. Each year the assessed value can increase by a maximum of 2%. This limitation is in place because of Proposition 13 (this is specific to California only), which passed in 1978. (I just remember that in 1977 I was in middle school and was required to shower after PE, even if we did nothing. In 1978, when Prop 13 passed, the school could no longer require us to shower since there were no longer school provided towels). The standard property tax is 1%, although nearly every county has additional taxes or assessments that bring the tax rate up to between 1.05% to 1.25%. Some areas, typically newer developments, may even have Mello Roos, but I’ll leave Mello Roos for another discussion. Each year, normally in October, the county sends out tax bills. The assessed value is multiplied by the tax rate. The bill is split into a “first half” due November 1 (late after December 10), and “second half” due Feb 1 (late after April 10).
When a home is sold, in most cases (we’ll try to forget about the whole 2008 debacle when property values dropped) the value for the new owner is higher than for the previous owner. This means that the new buyer will have a new tax amount to pay. But since the county will have already sent that years tax bills out there will be a “catching up” bill sent out several months after the purchase. Instead of calling the bill “Supplemental” they should just call it the Catching Up bill. This difference in property values is what spawned supplemental property tax laws.
A Little History on Supplemental Tax Assessments
Supplemental tax assessment laws were originally enacted here in California in 1983 and were intended to increase funding for schools. This law accelerated the effective date of new appraisals made according to Prop 13. Supplemental tax laws require that a new property assessment be completed after a change in property ownership. If the new value is greater than the previous value, then a Supplemental tax bill will be issued. If the new value is less than the old value, then a refund will be issued to the owner.
When is the Supplemental Tax Bill Sent out?
The bill for Supplemental taxes will come separate from the regular property tax bill and usually comes 6 to 9 months after the purchase. Supplemental taxes are primarily paid as a one time lump sum to make up for the difference between the required tax payments. If the change in ownership happens before May 31st, then there will be two supplemental tax bills. It is solely the responsibility of the buyer to make sure that the supplemental taxes are paid. The Supplemental tax bill will typically state something along the lines of “This bill will has not been submitted to your lender for payment”.
How to Estimate your Supplemental Tax Bill
Fortunately, most county tax websites have a Supplemental Tax Bill Estimator. You can use the online calculator to estimate your impending Supplemental Tax Bill. Below are links to a few of southern California county Supplemental Tax calculators.
If you have questions on the VA loan program in California, or would like to see custom VA loan scenarios, make sure to contact me. I’m always available to help.
Authored by Tim Storm, a California VA Loan Officer specializing in the VA Loan program. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.CaliforniaVALoans.com. I will prepare custom loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.