Can you clarify this? Property taxes are what are holding me back from making a bid for a more expensive home. If I buy a home for $1 million, won't I have to pay property taxes based on that price even if it was previously tax assessed at $100k.
Back in the 70s California passed a proposition that limits how much property taxes can increase. [0] As a result of this, if you buy a home and the price goes up afterwards, you won't be paying property taxes on the market price of the house.
If it’s based on square feet and some sort of local average square foot price from the last 12 months then fine.
If it’s based on individual assessors deciding your blossoming cherry grove and a charming mid-century atmosphere likely to appeal to young professional couples then… I’d rather the tax be based of the actual price for which the house last changed hands.
The assessed value is based on recent sales of similar comps.
If you bought your house for $50k in 1979, of course you want it to be based on the original price. In CA, the assessed value can only go up by 2% a year. But if I buy your house today for $1.2m, then I am going to be paying $1,000/month in property taxes. And if you want to move across town, or even downsize a little to that $800k condo, well, then you are going to lose that low low property tax rate.
Which is one of the reason there is a housing shortage. People don't want to upgrade or downgrade or otherwise sell. They just figure out ways to give it to their children or rent it out and keep the low tax rate locked in.
The other comments are all correct, but they didn't address your last point. Yes, you will indeed pay taxes on the $1M value, and yeah, high property taxes is definitely something to plan for when buying property in California. The kicker is, as others mentioned, when your home's value is $2M in five years, you're still paying taxes on essentialy a $1M property.
California caps how much property tax can increase each year unless there is a change in ownership. My mom pays $4k/yr in property tax for the house I grew up in, which is currently worth $2M.
There’s a cap on increases on the previously assessed value, value is re-assessed when ownership changes (except in certain cases like parents to kids). Look up Prop 13.
If property taxes were higher you wouldn't have to pay $1 million for the home because nobody can afford those property taxes and subsequently nobody would actually bid $1 million.
Meanwhile if you make property taxes negative then you could afford the same house for $2 million.
Edit: How can property taxes be negative? The government can use income taxes to build infrastructure to raise the value of your land.
