By Leon Brauning, ASA

(From our November 2008 eNewsletter)

Real Estate Taxing Issues and Surprises:

Taxing Issue #1: All California communities have a Property Transfer Tax which is due and payable upon the sale of real property. The basic Transfer Tax is $1.10 per $1,000 in transaction value. Therefore, a sale with a value of $500,000 would incur a transfer tax of $550.

Here’s the surprise. The City of Vallejo has a transfer tax which is $3 per $1,000 or $1,500 for a $500,000 value.

Taxing Issue #2: According to proposition 13 which passed in 1978 the tax rate on real property becomes 1% of the cash value at the time of sale. And, each year the tax may rise a maximum of 2% of the previous year’s tax. Therefore property tax on a parcel which had a cash value at the time of sale of $500,000 would be $5,000. The 2^nd year taxes could go up only by 2% which is $100. Taxes can be reduced due to falling values either by direction of the County Assessor or by filing a claim.

Here’s the surprise: Tax bills also are used to collect many other fees such as school bonds; parcel taxes; sewer fees; flood assessment districts and many other assessment districts including “Community Assessment Districts” otherwise known as Mello-Roos. We have found that these fees when unpaid carry stiff late payment penalties. The overall tax bill can be very large to the point of being overwhelming and actually affecting the value of the real property. For example, during our appraisal analysis of a residence located in the Hiddenbrooke district of Vallejo valued at $360,000 we found that the total of property taxes, bonds, assessments and penalties created a property tax bill of $10,278. This is not the first time we have found these issues in a Mello-Roos Community Assessment District.

We feel that the immensity of the transfer taxes, property taxes, the bonded indebtedness and the Community Assessment District fees in Mello-Roos communities have a real dampening effect on property values. For this reason it is very important for these tax issues to be disclosed to property buyers so that they understand them.