New Construction Often Leads To A New Base Year Value
When the voters passed Proposition 13 in 1978 freezing the base year value of property, they did allow for reappraisal of property upon change in ownership and "new construction." We normally think of new construction as building something from scratch or adding on to an existing structure. Under California property tax law it can also mean renovating a structure for change in use, rehabilitating a structure to a "like new" condition or even removing a structure.
The most frequent question I am asked is "if I add on to my home, will the whole property be reappraised?" Proposition 13 says that only the "addition" gets a new base year value which is added to the old base year of the rest of the property. The second most frequent question is "Will my new base year value be based on what the addition cost.?" Here the answer is not quite as simple. We do ask property owners to report the cost of the project to us (costs include not only labor and materials but permits, financing costs, architectural fees, etc.), but we also do an analysis of the impact of the addition on the market value of the property. For example a homeowner may decide to add a second story to her home in a neighborhood of single story residences. While the project might cost $40,000, we may determine that the home when completed is only worth $27,500 more than before the project since the addition was an "overimprovement" for that neighborhood.
On the other hand a handyperson might build a 480 square foot detached garage using their own labor for $4,800 but sales of comparable homes with detached garages show that the garage adds $9,600 in value to the property. We would enroll the higher figure. For property tax purposes the full cash value is based primarily on market conditions which neither the homeowner, nor the assessor, can influence.
The same process holds true for a new home. Some people spend more on their home than they could ever realize from the sale of the property so we adjust their cost to what we think the home is worth when completed. Other people manage to build a home for much less than what is worth when completed so we enroll the full cash value which may exceed their cost by 25 to 35 per cent or more.
Replacing a roof, interior or exterior painting, and replacing carpet are usually considered routine maintenance, but if the project becomes renovation or rehabilitation, a new base year value may have to be established. If a reappraisal is warranted, credit is given for the value of the improvements before the renovation so that only the increase in value is assessed. If you have questions about the potential property tax consequences of a project you are planning, please contact Napa County Assessor John Tuteur at 707.253.4459 or by e-mail firstname.lastname@example.org.