January 11, 2022 | Sexton Real Estate Group
Do you plan on buying a home in California in the near future? If so, you’ll need to be aware of the state’s complex tax laws. Here are five fast facts about taxes and buying a home in California that every prospective homeowner should know.
1. Property Taxes In California Are Below The National Average
California property taxes are below the national average. In fact, according to the Tax Foundation’s 2018 report on state and local tax rankings, California has the sixth-lowest property taxes in the country. This is good news for homeowners in the state!
As of 2021, property taxes in California are 0.73%. That’s lower than the national average of 1.07%
Additionally, when it comes to buying a home in California, you may be eligible for various tax breaks and incentives depending on your specific situation and location. For example, the state offers homeowners a variety of property tax exemptions and deductions which can help reduce your taxable income and save you money on your overall purchase price.
2. You Have To Pay Property Taxes On Your Home Even If You’re Only Renting It Out
If you’re renting out your property, you are still responsible for paying property taxes on it. In fact, if you don’t pay your property taxes, the county can place a lien on the property and eventually sell it to recover what you owe. Talk to your accountant or rental management company about how much tax you should expect to pay each year.
When you buy a home, the list of costs and fees is enough to make your head spin. But maybe one question stands out more than others: Do I have to pay property taxes if I’m only renting? The short answer is no—in California at least. If you own any kind of real estate in this state—even just an empty lot that’s never going to be built on or used for anything but storage —you’re required by law to pay property tax on it every year based on how much it’s worth.
Renters don’t fall under that category because they don’t technically own the place they live in, so there are currently no laws requiring them to chip in on the tax bill.
It’s worth noting, however, that this could change in the future. A few lawmakers have floated the idea of imposing a new property tax on renters as a way to help pay for affordable housing, and it’s something that could very well become law in the years to come.
So if you’re thinking about renting instead of buying in California, keep an eye out for any updates on this issue. In the meantime, though, know that there’s currently no added cost associated with being a renter here.
3. The Amount Of Property Tax You Owe Is Based On The Taxable Value Of Your Home
The amount of property tax you owe is based on the taxable value of your home. In California, the Assessor’s Office determines the assessed value of a property. This value is used to calculate the property taxes owed by the owner. The assessed value is usually less than the market value of a home. Homeowners can appeal their assessment if they think it is too high. However, increasing the assessed value will also increase your property taxes.
4. You Can Claim A Property Tax Deduction On Your Federal Income Tax Return If You Itemize Deductions
If you itemize deductions on your federal income tax return, you can claim a property tax deduction for the amount of state and local taxes that you paid during the year. This includes both regular property taxes and special assessments levied against your property.
However, there are some important rules to follow in order to qualify for this deduction. For example, the property must be used as your main home and you cannot claim a deduction for more than $100,000 in total state and local taxes.
5. There Is A Mortgage Interest Deduction
A mortgage interest deduction is a tax break that allows you to reduce your taxable income if you pay interest on a home loan. In other words, the government will let you write off part of what you paid in interest as an expense against your total income for a given year.
- The maximum amount deductible is $750,000 worth of debt used to buy or improve a first or second residence plus one vacation property located in the U.S. This includes refinancing but not investment properties.
- If someone owes more than they can afford without going into default, they might need help from their lender who may be able to apply some or all of those payments toward reducing how much money has to be borrowed.
- The good news is if you own a home and live in it for at least two out of the past five years, homeowners can deduct interest paid on mortgages up to $750,000 if they file as “married filing jointly” or $375,000 each (if married and filing separately).
- This deduction reduces how much income tax an individual has to pay because those who owe more than what their total taxable income would normally allow could write off some of that debt against their taxes owed during any given year. If this helps them reduce their yearly tax bill then it makes paying such high-interest rates worthwhile.
The deduction you are allowed to take for your loan or line of credit interest depends on the type of property that you have, as well as where it’s located and who’s living in it.
So, if you’re looking to buy a home in California and want help getting your taxes sorted out, give us a call. We’ll be happy to walk you through the process of tax exemptions for homeowners or take care of it all for you!
Are You Looking to Buy a Home in Northern California?
The top real estate agency in Northern California, Sexton Group Real Estate in Berkeley, California is a boutique real estate company specializing in residential sales for properties throughout the San Francisco Bay Area. To better serve our clients we have three local offices, one in the heart of picturesque Berkeley, one near downtown Oakland and the third in the heart of historic Lafayette, California. The Sexton Group encompasses the essence of Berkeley’s charm, Oakland’s history and Lafayette’s family-oriented vibe all with a relaxed, down-to-earth nature. We are an amazing group of real estate agents whose wealth of experience spans more than 25 years in the industry. Looking to buy a home in Contra Costa or Alameda County? Contact us today for your free consultation!