In California, your property taxes are based on 1.25% of the purchase price at which you bought your home. For example, if you buy a $500,000 home, your annual taxes will be $6250, or $520.83 monthly. They can and will increase based on certain limits instituted by Prop 13, but I’ll discuss that in a future post.
When you close escrow, the property taxes owed will be prorated based on the existing tax basis, which is based on what the current owner’s property taxes are. It takes the county a good number of months to catch up, but one of two things will happen, depending on what price you purchase the home at versus what price the seller purchased the home at.
1. If the current owner is selling their home for more than what they bought it at, you will receive a tax bill for existing taxes, and then, once the county catches up, they will send you a supplemental tax bill for the difference. By the time the next installment is due, the county should be caught up. Eventually, they’ll be fully caught up and you’ll receive a tax bill for your true tax amount.
2. If the current owner is selling their home for less than what they bought it at, things become a little more tricky and you need to be more proactive about getting a refund. Some counties may not issue refunds, but instead will apply the extra payments towards future tax bills. What you will need to do after a few months of closing escrow is physically go to the county with your HUD (your closing statement that shows the purchase price) and proof of having already paid at the seller’s tax basis, and ask for a refund.
I haven’t personally had to do the latter, but I’m curious about any of your experiences and results. If you have had to ask for a refund on property taxes, please let me know.
