Understanding Assessed Value and Property Taxation in San Francisco

Did you know that over 90% of San Francisco’s 211,000 properties are residential? Every one of these properties must be assessed and taxed each year. The Assessor-Recorder’s Office is responsible for fairly valuing properties, which creates the city’s property tax revenue. The question is, how do they assess property value and what kind of property tax costs can you expect as a San Francisco property owner?

In this article, we’ll cover how Proposition 13 affects assessed value, what to expect each year, and how property improvements, exemptions and deductions, and local tax rates might impact you. We’ll also discuss how to challenge the assessed value of your home through the appeals process. 

Understanding Proposition 13

In 1978, California voters approved Proposition 13 (Prop 13), an amendment to the California constitution that has three major impacts that still matter today. 

1. Prop 13 mandated a property tax rate of 1%.
2. Prop 13 requires that properties be assessed at market value at the time of sale.
3. Prop 13 allows assessments to rise by no more than 2% per year until the next sale.

Basically, when you purchase a property, the initial assessment is set at the market value, but then Prop 13 limits the assessment growth over time. Once an initial value is set at the time of purchase, the assessed value of your property will only change if one of the following applies:

• An inflationary increase of up to 2% per year as allowed under Prop 13;
• You completed new construction on your property;
• One-year temporary reduction in assessment when the market value drops below Prop 13 value;
• Restoration of Prop 13 value from prior year temporary reductions due to economic conditions, fire damage, or other calamity.

Why Annual Adjustment Matters

Before Prop 13, the assessed value followed the market value. Prop 13 limits the amount the assessed value of your property can increase each year. This annual adjustment is crucial for preventing dramatic spikes in property taxes, providing homeowners with a degree of predictability in their tax obligations. The adjustment is capped at 2% or the rate of inflation (whichever is lower), offering a measure of stability.

For example, let's consider a property in San Francisco with a market value of $1 million. Under Prop 13, if the property has not changed ownership, the assessed value for the first year would be $1 million. In the subsequent year, even if the market value increases to $1.1 million, the assessed value can only rise by 2% to $1.02 million.

However, if the property changes ownership, the assessed value would be reset to the new market value. For instance, if the property is sold for $1.1 million, the assessed value would be adjusted to match the sale price.

Assessment of Improvements

The assessed value of your home can change if you complete new construction or improvements on your property. So, if a homeowner invests in renovations, expansions, or other enhancements, the Assessor-Recorder's Office takes these improvements into account when calculating the assessed value. This ensures that changes in the property's physical condition and features are reflected in its assessed value for taxation purposes. Some improvements and repairs are assessable while others are not. It’s important to understand the difference and to fill out the appropriate forms with the Assessor-Recorder’s Office.

Exemptions and Deductions

Several exemptions and deductions can impact the assessed value of a property, potentially reducing the property tax burden for homeowners. One common example is the homeowner's exemption, available for owner-occupied residences. This exemption allows eligible homeowners to deduct a certain amount from their assessed value, providing valuable tax relief.

Other exemptions may apply to specific situations, such as those related to veterans, seniors, or properties used for certain agricultural purposes. It's essential for property owners to be aware of these exemptions and deductions and ensure they take advantage of any available opportunities to reduce their property tax liability.

Local Tax Rates

In addition to the assessed value, the property tax bill is influenced by the local tax rates set by various taxing entities, including school districts, municipalities, and special districts. These rates are applied to the assessed value to determine the total property tax amount. The combination of the assessed value and local tax rates creates the overall property tax obligation for homeowners in San Francisco. Once all local adjustments are made, San Francisco's property tax rate averages around 1.3% of your home’s purchase price.

Challenges and Appeals

While the assessment process aims to be fair and accurate, property owners may find themselves in disagreement with the assessed value assigned to their properties. To initiate the appeals process, San Francisco homeowners can fill out a form online detailing the current assessment value, their estimated adjusted value, and the reason for their appeal. It’s helpful to include evidence that might affect your home’s value, such as recent comparable sales data or documentation of property defects.

The appeals board, which is part of the Assessor-Recorder’s Office, will review the request and make a decision. At that point, if you still do not agree with their assessment, you must appeal to the San Francisco Superior Court.

Conclusion

Even as your home’s market value may increase dramatically in a year, the assessed value of your home–and your property taxes–are capped at an increase of 2%, thanks to Prop 13. As you’re budgeting for property taxes, keep in mind that the assessed value could increase by more than 2% if you’ve completed any renovations. You can also seek out potential exemptions and reductions to reduce your tax bill or appeal your property tax bill if you feel it is not fair and accurate.

Overall, the property tax system in San Francisco is designed to be transparent and equitable, but it’s important to stay informed about the assessment process, regularly review your property tax bills, and take advantage of available resources. Send us an email at [email protected] for any questions or for more information.