New Construction
"What happens when I build on my property?
If I add a room, will my taxes go up?"
This pamphlet, produced by the Santa Cruz County Assessor explains what happens to the assessed value of property when a parcel is improved.
What happens when I build a new home on my vacant property?
New construction is appraised at fair market value as of the date of completion. Fair market value is usually the cost of construction. This cost represents all necessary costs that must be incurred in placing the building or component in the hands of the ultimate consumer, including the following:
- Excavation for foundations, piers, and other structural foundation components
- Materials
- Labor
- Architects fees
- Engineers fees
- Supervision
- Normal permits, etc.
- Normal utility hook-ups
- Overhead and profit
- Contingencies
- Carrying charges during construction
- Legal expenses
- Typical sales commissions or costs and transfer fees
How does this affect my existing assessment?
The land portion of the property is protected by Prop 13. The only change to this value would be a result of land improvements (septic, sewer, etc.) which would be added to the existing land value.
Do you reappraise my property every time I do a little home improvement?
Yes and no. Under the rules of Prop 13 the Assessor reappraises new construction at fair market value when the improvements are complete. However, only the new construction is appraised. If you are simply adding a room, expanding an area, building a shed, etc., the existing assessed value of all other improvements will not be subject to reappraisal.
Does the assessor pick up the value of every little bit of work that I do on my property?
No. The State Board of Equalization has offered seminars on the topic: What constitutes new construction? It really boils down to the value of the improvement, and its newness . Our office receives copies of permits from the various jurisdictions in the county on a regular basis. Many of these permits are purged up front (miscellaneous electric, special inspection, etc.) and are considered not reappraisable. In addition, remodeling is not considered new construction. As a rule of thumb, unless a structure is taken down to its studs, we consider such work to be deferred maintenance and, therefore not subject to reappraisal.
How do you determine the value of my construction?
Our professional appraisal staff uses standard appraisal methods to value new construction. In the majority of cases we use standard cost factors. Of course, each appraisal has its own unique variable components of quality, utility, size and context. The appraiser often simply requests a cost breakdown from the owner. When a general contractor has done the work, such costs are usually quite accurate. In the case of the owner/builder it’s not quite as simple. Owner/builders don’t normally include their own labor, overhead, supervision, insurance, and other soft costs that are found in a typical contract. Market value, for purposes of tax assessments, does include all of these items.
How is the increased value of my property reflected in my taxes?
When construction is complete, the value of the new construction is added to the total assessed value of the property. The portion that is added will generate a supplemental bill which is calculated as 1% of assessed value. This supplemental amount is then prorated from the month following completion to the end of the fiscal year (June 30). For example, if I finish adding a $25,000 room to my house on September 15th, the assessment would be calculated as follows:
........ $25,000X.01 X .75 = $187.50 .......
Do I have to pay this supplemental all at once?
No. Once the value is processed the additional tax will be split into two separate bills. These will be mailed out with due dates clearly indicated.
Do I pay this tax the following year?
Not on a separate bill. Once the supplemental bills are paid the added value becomes a part of your total property value and is reflected in your yearly tax bill.
Should you have any further questions please contact the County Assessor's Prop 60 facilitator at 454-2002.
"THE SUPPLEMENTAL JOURNEY"
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IF YOU BUY NEW PROPERTY
or
COMPLETE NEW CONSTRUCTION
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Between June 1 and December 31* Between January 1 and May 31*
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| |
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| THEN YOU WILL BE RESPONSIBLE FOR: |
| THE CURRENT FISCAL YEAR |
| |
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Your portion of Annual Tax Bill** Your portion of Annual Tax Bill**
for current fiscal year, for current fiscal year,
reflecting prior assessed value. reflecting prior assessed value.
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| |
| |
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Supplemental Tax Bill for First Supplemental Tax Bill for
remainder of current fiscal year, remainder of current fiscal year,
reflecting difference between new reflecting difference between new
and prior assessed values. and prior assessed values.
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| |
| |
| Since the change in value occurred
| after the January 1 lien date and
| will not be reflected on the annual
| tax bill for the upcoming year, you
| will receive: |
| |
| |
| FOR UPCOMING FISCAL YEAR: |
| |
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Annual Tax Bill ** for upcoming Annual Tax Bill ** for upcoming
fiscal year reflecting new fiscal year reflecting value of
assessed value. the January 1 annual assessment.
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Note: |
There are sometimes delays in placing |
supplemental assessments on the tax roll. --------------------------------------
Thus, the increase in assessed value might Second Supplemental Tax Bill for
not be placed on the tax roll until after entire upcoming fiscal year,
March, in which case you will receive two reflecting difference between
supplemental bills (see right-hand column) new and prior assessed values.
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REMEMBER:
* Taxes on the increase in assessed property value due to ownership changes or
completion of new construction are calculated as of the first day of the month
following the date of ownership change or construction completion.
** Property is reassessed each January 1 for the upcoming fiscal year (July l-June 30).