Repairs or Renovation?
California voters passed Proposition 13 in 1978 establishing base year values of property subject to a maximum 2% inflationary adjustment each year or upon change in ownership or “new construction.” Replacing a roof, interior or exterior painting, and replacing carpet are usually considered routine maintenance and are not considered new construction. However, if a project becomes renovation or changes the use of the structure, a new base year value may have to be established for the renovated or changed improvements.
There are some general guidelines that property owners can follow to understand the consequences of proposed construction. The Revenue and Taxation Code defines new construction as “any alteration . . . of any improvement . . . that constitutes a major rehabilitation thereof or that converts the property to a different use.” A major rehabilitation is further defined as “any rehabilitation, renovation, or modernization that converts an improvement . . . to the substantial equivalent of a new improvement.”
Our appraisers first determine whether a project qualifies as “substantially equivalent of new.” If the answer is yes, the new taxable value of the property is determined following renovation by adding the full value of new construction to the taxable value of preexisting property less any value of property removed during construction. Please remember that the value, not necessarily the cost, of the renovation is added. As an example, a property owner converts a former auto repair shop to an office building. The cost of such conversion might be more than the value added to the property because remodeling costs are often greater than a new structure might have cost. The new base year value of the converted office structure would recognize those portions of the auto repair shop that were demolished as part of the project.
Kitchen remodels often present the same issues. Kitchens come with cabinets, appliances, counter tops, etc. before the remodeling. Homeowners can easily spend thousands of dollars remodeling a kitchen that has those same elements when they are done. It is clear that upgrading countertops from Formica to granite, a 35-year-old range to a ceramic cook-top and modern oven and installing custom cabinets add value to the home. It is the job of our appraisers to enroll the correct added value, which usually is below the cost of the remodel unless the property owner does the work herself.
Our staff is available to discuss major renovations or changes in use while still in the planning stages so that the property owner can get a very rough idea of the impact of the project on their tax bill. Should you have any questions please contact Napa County Assessor John Tuteur at 707.253.4459 or by e-mail firstname.lastname@example.org.