Understanding supplemental property taxes

Understanding supplemental property taxes

 

Ask Phyllis: a blog series of frequently asked real estate questions. Please email us here.

Dear Phyllis,

You cover a variety of real estate topics. However, I don’t believe you have ever written about supplemental property taxes. I was the executor of my Uncle’s estate in San Diego. We closed escrow in February, and I received a supplemental tax bill for nearly $3,000.00. I asked our Realtor, who directed me to the county assessor’s office. To sum up, it seems that I do need to pay. I am hoping that you will assist me in understanding supplemental taxes and also how they are calculated.

Dan M.

Dear Dan,

Current California law reassesses the property when there is a change of ownership to a home.

Supplemental property taxes are in addition to the regular annual tax bills. Never assume that supplemental taxes were paid through escrow or that if the lender had property taxes impounded, your lender will pay them. Supplemental bills are sent directly to the owner (in your instance, the trustee) and not to a lender’s impound account (if one exists).

State law requires that the Assessor reappraise the property upon a change in ownership. The supplemental assessment reflects the difference between the new and old values. This is not a penalty but merely recapturing the difference from the date of passing until the closing date. Think of this as a catch-up bill. The supplemental tax bill is simply a one-time bill that collects the difference between the property taxes from the sale date and those owed by your Uncle’s estate at the time of his passing.

For example, let’s assume we consider your Uncle’s home, which underwent an assessment of $600,000 and got sold for $900,000. You need to pay property taxes on the extra $300,000, which is applicable from the time of his passing until the day you closed escrow. The proration of this additional sum is based on the actual number of days.

It is frustrating that this supplemental bill typically takes months to receive. However, you are correct that you need to pay this additional tax. They must be paid promptly to avoid penalties.