Understanding Property Taxes in Pacific Palisades

The sun, the sea, and the sprawling estates – Pacific Palisades is where many would choose to live if they could. However, to enjoy the wonderful lifestyle Pacific Palisades offers, you’ll need to know about and navigate the unique set of property taxes operating in the area.

This guide will break down the complex and frequently changing California property tax system, providing Pacific Palisades property owners the confidence to make informed decisions and maximize the amount they have in their pocket.

From the basics of tax calculations to taking advantage of exemptions, this Pacific Palisades real estate guide to all things property taxes will ensure you’re getting the most out of your dream home in this coveted community.

Overview of Property Tax Systems

Local governments charge property taxes on real estate, like homes and land. The amount you pay depends on the assessed value of your property, not its current market value. These taxes fund essential services like schools, police and fire departments, roads, libraries, and water systems.

Property taxes affect various types of real estate, including primary residences, vacation homes, rental properties, and commercial buildings. Renters generally don’t deal with this tax directly.

For homeowners, knowing how property taxes work helps you budget and plan for any potential tax hikes. It also aids in comparing different properties and their tax rates if you’re buying or selling a home. For buyers, understanding property taxes can help you pick neighborhoods or properties with more manageable tax rates. It’s also helpful when negotiating with sellers.

The California Property Tax System

In California, two voter-approved measures, Props 13 and 58, created a unique system that made it difficult for property taxes to change, even if the market value of a property increased.

Proposition 13, which passed in 1978, set property taxes at 1% of the assessed value and limited increases in assessed value to just 2% per year, no matter how quickly property values jumped. So, in California, the taxes you pay are connected to the home’s purchase price rather than what it’s worth at a later date.

Then Proposition 58, approved in 1986, allowed people to inherit property without paying taxes based on current market prices. Instead, they would continue paying the lower taxes set by the original owner’s assessed value. This was a boon to homeowners in Pacific Palisades, as well as other areas with high-priced real estate, for quite some time.

This mechanism, however, was hobbled by Proposition 19, which passed in 2020. Now, heirs can base their property taxes on the current assessed value, with the first $1 million of that value being excluded from taxes. Anything over that amount will still be taxed. While this has made some parts of inheritance simpler, it has also brought in new considerations for property owners and their families to think about, depending on circumstances.

There’s also something called the “Mansion Tax” or Measure ULA, which affects property sales. If a property sells for more than $5 million, there’s a 4% tax on the sale. For properties over $10 million, the tax is 5.5%. The money from this tax goes to affordable housing and homelessness projects. This tax is an attempt to address critical social issues by targeting higher-value property sales.

The measure kicked in back in April 2023, but its future remains unclear. Measure ULA may be challenged by the Taxpayer Protection Act, which is something people will vote on statewide in November 2024. If that act gets the green light, it would change the rules so that any special tax needs approval from at least two-thirds of voters, instead of just more than half, for any measures put in place after January 1, 2022. Measure ULA falls into this category, so, at the minimum, it will have to go through another vote if the Taxpayer Protection Act is approved.

Whether the act passes or not, however, the ongoing debate surrounding Measure ULA serves as a reminder to stay informed about local and state tax laws that could potentially impact your real estate investments or family legacy plans.

Property Assessment in Pacific Palisades

The Los Angeles County Assessor’s Office starts its yearly assessments on January 1, handing out notices regarding any changes on a property’s valuation anytime from June to August.

After getting these notices, property owners can contest the valuation if they think it doesn’t match the market value. The deadline for filing appeals in Los Angeles County is December 1.

Property tax bills are mailed out on October 1st, clearly stating the amount owed. This organized timeline helps make the property tax process predictable and straightforward, offering clarity and fairness.

Note that the office will also get a copy of any building permits filed within the county. They hold the right to inspect the property if they suspect any additions or enhancements have been made. Additionally, the assessor can establish a new base-year value for any newly built sections of the home.

Factors Influencing Property Assessments

The assessment process for properties in Pacific Palisades is complex and somewhat opaque. The best way to understand it is to separate properties into two components that are assessed separately and in combination: land value and improvement value.

Land value might change due to zoning updates, how close a property is to schools or parks, and how popular the area is. The value of improvements depends on factors like building size, age, and any upgrades or renovations. These factors make it tough to predict property taxes accurately.

For a better understanding of property values, you can visit local property assessments here.

Tax Rates and Calculation

California has a reputation for high taxation, but its property taxes tend to be more in line with the national average. The typical property tax rate here is about 0.74% of a home’s value.

To put this in perspective, compare it to New Jersey’s 1.89% or New Hampshire’s 1.86% – the highest property taxes in the country. In contrast, states like Louisiana and Alabama have much lower rates at 0.18% and 0.33%, respectively.

But what does this look like in practice? Keep in mind that home prices in California are generally higher than in many other states, so your total tax bill could still be quite significant despite the moderate tax rate.

For instance, Nebraska has a property tax rate of 1.76%, whereas the District of Columbia has a much lower rate of 0.46%. Even though the median home value in Nebraska is $123,000, houses in the District of Columbia have a median value of $444,000. This means that, on average, a homeowner in Nebraska would pay about $2,150 in taxes, while a homeowner in the District of Columbia would pay around $2,050. In California, where the median home value is just over $384,000, the average property tax bill comes out to approximately $2,844.

While this might not seem like a big difference when looking at state averages, things change significantly when you zoom in and look at the county level, as property taxes are set and collected there.

Property Tax Rates in Pacific Palisades

Living in Pacific Palisades usually means higher property taxes. While the average tax rate in Los Angeles County is relatively low at 0.59%, homes in this upscale community are taxed at a rate of 1.64%. Considering that homes here are valued at around $3.5 million, you would be looking at an average yearly tax bill of about $57,400. Thankfully, there are various exemptions and deductions that can significantly reduce your tax burden. You can also appeal your property’s assessed value to potentially lower your tax bill.

Surprisingly, the average Pacific Palisades homeowner pays $25,000 in property taxes. This is less than half of the theoretical average tax bill mentioned earlier. This number is based on the number of properties in the neighborhood (8,826), its cumulative value ($14.9 billion), and the property taxes collected ($222.7 million).

Exceptions, deductions, and tax optimization strategies all play a part in this. But something that can get overlooked is the sometimes sizable gap between assessed value and market value.

Differences Between Assessed Value and Market Value

The assessed value of your home is what local authorities use to calculate property taxes. It’s supposed to be a reasonable guess of your property’s worth. On the other hand, the market value is what someone would actually pay for your home at the time of sale. This is the figure that real estate agents and buyers look at when making offers.

Assessed values tend to be more stable, while market values can fluctuate considerably based on factors like market trends including supply and demand. The assessed values often lag behind because they are updated less frequently, typically on an annual basis.

You might see a big gap between different numbers because of tax exemptions and deductions. For example, you could have a homestead exemption or make your home more energy-efficient, which would save you money on taxes. A typical home in Pacific Palisades built in 1960 might be valued at $1.5 million for tax purposes but have a market value of $2.2 million. However, if you sell your home or make large improvements, like adding a bedroom or bathroom, the Los Angeles County Assessor’s Office will reassess its value. That new assessed value will likely be closer to the market value, which means your property taxes will go up.

Exemptions and Deductions

Here are the key exemptions and deductions you should know about in Pacific Palisades:

• Homeowners – You can reduce your home’s assessed value by $7,000 simply by asking for it, as long as your Pacific Palisades home is your primary residence. To apply, fill out the homeowners exemption form from the Los Angeles County Assessor’s Office. Once you apply, the exemption will automatically renew every year.
• Senior citizens, disaster victims, and those with severe disabilities – Proposition 60 lets homeowners over 55 sell their homes and move their original tax assessment to a new home of the same or lower value within the same county. Proposition 19 broadens this benefit to any county in the state. You can transfer this tax assessment up to three times. A real estate lawyer can give you local market insights to help speed up the process.
• Property Tax Deductions – If you itemize your deductions, you can deduct up to $10,000 of your Los Angeles County property taxes on your federal return. California may also offer some state tax deductions. Be sure to consult your accountant or tax advisor on how to make the most of these deductions.
• Veterans – Qualified veterans and their families can get a California property tax exemption of up to $4,000. This benefit extends to surviving spouses or parents of eligible veterans. More details can be found on the BOE’s website.
• Family Transfers – If you inherit a house from your parents or children, it won’t face a full tax reassessment. This also counts for properties from grandparents if both parents have passed away. Proposition 19 states the property needs to be your relative’s main home, and you have to make it your primary residence within a year. If the home’s value jumps more than $1 million above its current market value at the time of the transfer, the new value will be the market value minus $1 million.

Strategies for Tax Optimization

Given that your property taxes depend so heavily on your home’s assessment, it’s crucial to keep a close eye on your situation. If you think the assessed value is wrong, file an appeal. In California, don’t argue that similar homes are valued lower because home values can differ greatly, even if they’re side by side. Instead, focus on unique details about your own home that the assessor might have missed.

When it comes to disputing your property’s assessed value, you want every detail to be accurate. This includes things like the actual size of your lot, the number of bedrooms and bathrooms, or any upgrades and repairs you’ve done recently that might bump up your home’s worth. Green upgrades like solar panels or energy-efficient appliances can make a case for lowering your assessment, as California incentivizes environment-friendly homes.

If you need to file an appeal, you can do it online at the Assessment Appeals Board. Just keep in mind there’s a $46 filing fee, although in particular circumstances this fee is waived.

Resources for Further Assistance

The Los Angeles County Assessor’s Office is your primary point of contact for property tax concerns for your Pacific Palisades property.

The BOE has several resources you might be able to use for a general understanding of California property tax laws, including a rundown of the available exemptions in the state and an FAQ.

The Board of Supervisors is in charge of all assessment appeals in Los Angeles County. Their FAQ page offers helpful information about the appeals process and how to navigate it successfully.

Buying a Home in Pacific Palisades

While California’s property tax laws can be somewhat more complex than in other regions, they should by no means put you off exploring your options in its fantastic real estate. If you’re exploring your options in Pacific Palisades, make sure you have James Respondek in your corner.

He and his team are the only Pacific Palisades real estate guides you need to navigate the area’s property tax laws, providing the local market insights you need to come out ahead. Along with his team of experienced luxury real estate specialists at The Respondek Group, James has helped countless clients successfully purchase and sell properties in the Pacific Palisades area, all while minimizing their property tax burden.

Don’t let property taxes hold you back from living the dream in Pacific Palisades. span style=”text-decoration: underline;”>Contact James and The Respondek Group today at 310.488.4400 or by sending an email.