Understanding Property Taxes in San Francisco

Property taxes are an essential consideration for anyone buying or owning a home in San Francisco. These taxes fund local services such as schools, public safety, infrastructure, and parks, making them a vital part of maintaining the city’s vibrant community. However, San Francisco’s property tax system is nuanced, with rates influenced by California’s Proposition 13, property assessments, and local measures. Here’s a comprehensive guide to understanding how property taxes work in San Francisco.

1. How Property Taxes Are Calculated

San Francisco property taxes are based on a percentage of the assessed value of your property, which is determined at the time of purchase. Here’s the general breakdown:

• Base Tax Rate: The standard property tax rate in San Francisco is approximately 1.2% of the assessed value. This rate includes the 1% base tax set by California law under Proposition 13, plus additional local levies and voter-approved bonds.

• Additional Assessments: Local measures and bonds, such as funding for public schools, affordable housing, and infrastructure improvements, can add small percentages to the base rate.

For example, if you purchase a home in San Francisco for $1,500,000, your annual property taxes would be approximately $18,000 (1.2% of $1,500,000).

2. Proposition 13 and Assessed Value

California’s Proposition 13, passed in 1978, caps the amount that property taxes can increase each year. This provides stability and predictability for homeowners.

• Initial Assessment: When you purchase a property, the assessed value is set at the purchase price.

• Annual Increase Cap: Assessed values can only increase by a maximum of 2% per year, regardless of market value changes.

• Reassessments: Properties are reassessed to market value only when there is a change in ownership or major improvements are made (e.g., adding a new floor or remodeling the kitchen).

This system benefits long-term homeowners, as their property taxes remain relatively stable over time, even as property values rise.

3. Supplemental Property Taxes

When you buy a home, you may also receive a supplemental property tax bill. This occurs when the purchase price is higher than the previous owner's assessed value.

• The supplemental tax covers the difference between the old and new assessed values for the remainder of the fiscal year.

• This is a one-time adjustment and is separate from your regular property tax bill.

For instance, if the previous owner’s assessed value was $800,000 and you purchased the home for $1,500,000, you would receive a supplemental bill for the tax difference.

4. Property Tax Deadlines

San Francisco property taxes are paid annually in two installments:

• First Installment: Due November 1 (delinquent after December 10).

• Second Installment: Due February 1 (delinquent after April 10).

If you have a mortgage, your lender may include property taxes in your monthly payment and pay them on your behalf.

5. Tax Savings for Homeowners

San Francisco offers several programs to help reduce property taxes for eligible homeowners:

• Homeowner’s Exemption: A $7,000 reduction in assessed value for owner-occupied homes, saving around $70 annually. While modest, it’s worth applying for.

• Senior Citizens' Property Tax Postponement Program: Allows eligible seniors to defer property tax payments until the home is sold.

• Disabled Veterans’ Exemption: Provides additional tax relief for disabled veterans and their spouses.

6. Property Taxes for Multi-Unit Buildings and TICs

In San Francisco, property tax rules can differ for multi-unit buildings and tenancy-in-common (TIC) arrangements:

• Multi-Unit Properties: Each unit is taxed based on its proportional value within the building.

• TICs: Taxes are based on the building’s collective assessed value, divided among owners according to their ownership share. This can result in higher taxes compared to owning a condominium due to limited tax benefits for TIC conversions.

7. Impact of Rising Property Values

San Francisco’s real estate market is known for its high property values. For new buyers, this means property taxes will be based on the home’s current market price, leading to higher tax bills than those paid by long-time owners under Proposition 13. However, for long-term investments, the 2% cap on annual increases ensures manageable tax growth.

8. What Happens If You Don’t Pay Property Taxes?

Failure to pay property taxes can result in penalties, interest, and even the risk of losing your property. After five years of delinquency, the county can sell the property at a tax auction to recover unpaid taxes.

9. Proposition 19: Recent Changes

California’s Proposition 19, enacted in 2021, introduced new rules for property tax portability and inheritance:

• Tax Portability: Eligible homeowners (age 55+, disabled, or victims of natural disasters) can transfer their existing tax assessment to a new property, even if the new home is more expensive.

• Inheritance: Heirs must now live in the inherited home as their primary residence to retain the low tax assessment.

Key Takeaways for Homebuyers

1. Budget for Property Taxes: Use the purchase price of the home to estimate your annual property tax bill at approximately 1.2%.

2. Apply for Exemptions: Take advantage of programs like the Homeowner’s Exemption to save on taxes.

3. Understand Supplemental Taxes: Be prepared for one-time supplemental bills after purchasing a property.

4. Hire a Tax Advisor: For complex situations, such as multi-unit buildings or inheritance, consult with a property tax expert.

Conclusion

Property taxes are an unavoidable part of homeownership in San Francisco, but understanding the system can help you plan effectively and take advantage of available savings. Whether you’re a first-time buyer or a seasoned investor, working with a knowledgeable real estate professional can make navigating the tax landscape much easier.

For expert guidance in buying or selling property in San Francisco, contact Nona Ehyaei, a trusted local real estate agent. With her deep knowledge of the market and experience in helping clients make informed decisions, Nona can assist you with every aspect of your real estate journey. Reach out at 415-828-0047 or nona.ehyaei@compass.com.