Understanding Property Taxes in California (Including Proposition 13)

Buying a home is one of the biggest financial decisions you’ll make, and understanding the ongoing costs of homeownership is just as important as understanding the purchase price.

One expense every California homeowner needs to understand is property taxes.

For many first-time buyers, property taxes can be confusing—especially because California’s system works differently than many other states. A major reason for this is Proposition 13, a law that has shaped California property taxes for decades.

Here’s what buyers need to know before purchasing a home in California.

How Property Taxes Work in California

In California, property taxes are based on the assessed value of your property.

When you purchase a home, the county reassesses the property based on the purchase price. Your annual property tax bill is then calculated based on that assessed value.

The general property tax rate in California is approximately:

1% of the assessed value + local voter-approved assessments

These additional assessments can vary depending on the location and may include items such as:

• School bonds
• Local infrastructure improvements
• Special district fees

Because of these additional charges, the total property tax rate is often slightly higher than 1%.

What Is Proposition 13?

Proposition 13 is a California law passed by voters in 1978 that limits how property taxes are calculated and how much they can increase over time.

Under Proposition 13:

• Property taxes are generally based on the property's purchase price when it changes ownership.
• Annual increases to the assessed value are limited to a maximum of 2% per year as long as the property remains under the same ownership.
• The property is reassessed when it is sold or undergoes certain ownership changes.

This means two neighbors with very similar homes may have very different property tax bills if they purchased their homes at different times.

Example of Proposition 13 in Action

Imagine someone purchased a home in California years ago for $600,000.

Because of Proposition 13, their assessed value may have increased gradually over time rather than matching today's market value.

A new buyer purchasing the same home today for $1.2 million would likely have property taxes based on the new purchase price—not the previous owner's lower tax basis.

This is one reason it's important for buyers to estimate property taxes based on their purchase price, not the seller's current tax bill.

How Much Are Property Taxes on a $1 Million Home?

For a home purchased at $1,000,000:

• Base property tax: approximately $10,000 per year
• Monthly estimate: about $833/month

With additional local assessments, the total amount may be somewhat higher depending on the city and county.

For buyers in areas like San Francisco, Pacifica, and Daly City, understanding these costs is an important part of budgeting for homeownership.

When Do Property Taxes Increase?

Your property taxes may increase when:

You Purchase a Home

The property is reassessed based on the purchase price.

You Complete Major Improvements

Certain additions or improvements may increase the assessed value.

Examples:

• Adding square footage
• Building an additional unit
• Major renovations that add value

Ownership Changes

Certain transfers of ownership may trigger reassessment.

Are Property Taxes Included in Your Mortgage Payment?

Many homeowners choose to have property taxes included in their monthly mortgage payment through an impound account (also called an escrow account).

Instead of paying one large annual tax bill, your lender collects a portion each month and pays the property taxes on your behalf.

This can make budgeting easier because your monthly payment includes:

• Mortgage principal
• Interest
• Property taxes
• Homeowners insurance

Why Buyers Should Understand Property Taxes Before Making an Offer

Property taxes directly impact your monthly housing costs.

When determining affordability, buyers should consider more than just the mortgage payment.

Your monthly expenses may include:

• Mortgage payment
• Property taxes
• Homeowners insurance
• HOA dues
• Maintenance costs

A home that fits your purchase price budget may feel very different once all monthly costs are included.

Final Thoughts

Understanding California property taxes—and the impact of Proposition 13—is an important part of preparing to buy a home.

While Proposition 13 provides long-term protections for homeowners by limiting annual increases, new buyers should remember that their property taxes are based on the home's current purchase price.

Being informed about these costs can help you create a realistic budget and feel more confident when entering the California real estate market.

Thinking About Buying a Home in California?

I’m Brooke Lau, a Bay Area Realtor helping buyers navigate the homebuying process with confidence.

Whether you’re exploring homes in San Francisco, Pacifica, Daly City, or other Bay Area communities, I’m here to help you understand the full picture—from financing and taxes to finding the right home.

Brooke Lau
Realtor® | SF Bay Area