Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Real Property Taxation

The federal government at the present time does not impose a tax based upon the ownership of real property. However, almost all state governments have a tax that is a percentage of the real estate's value. In California, the tax is assessed by the tax assessor in the county in which the real property resides. The tax rate is approximately 1.125 percent of the fair market value of the real estate. In California, once the property is assessed under Proposition 13, it may only increase in value for tax valuation purposes by 3 percent per year, and therefore the tax liability may increase by no more than 3 percent per year, unless there is a triggering event such as an improvement to the property or a sale or transfer. Since the real estate tax is a percentage of the assessed value, and given that the assessed value is kept artificially low, the result is that the real property tax is kept artificially low, unless there is an improvement, a sale, or a transfer.

In California, real property taxes are paid semiannually. The first installment for the applicable calendar year is due November 1 of that year and considered delinquent December 10 of that year. The second installment is due February 1 of the next year and considered delinquent April 10 of the next year.

In California, the real property tax expense often comes up as an issue in connection with a sale. When the property is analyzed for an acquisition, if the seller has owned the property for an extended ...