Supplemental Property Taxes

Supplemental property taxes are additional taxes assessed when a property's value changes due to ownership transfer or new construction. This ensures the new owner pays taxes based on current market value, not the previous owner's Proposition 13 value.

When Supplemental Taxes are Triggered

How Supplemental Taxes Work

The Supplemental Assessment

When property changes ownership:

1. Old assessment continues until fiscal year end
2. New assessment (market value) is established
3. Difference is the supplemental assessment
4. Prorated from change date to fiscal year end

Example Calculation

Property sold on October 1 for $800,000:

Two Supplemental Tax Bills

Because the California fiscal year runs July 1 to June 30, a mid-year purchase may result in two supplemental tax bills:

Why Two Bills?

1. First bill: Prorated for remaining current fiscal year
2. Second bill: Prorated for the period until the new assessment appears on regular tax bill

Important Characteristics

NOT Included in Impound Accounts

Critical for Exam and Practice: Supplemental taxes are billed directly to the property owner and are NOT included in mortgage impound (escrow) accounts.

Many new buyers are surprised by supplemental tax bills because:

• Lender doesn't collect for them
• They arrive separately from regular tax bills
• They can be substantial amounts

Delinquency Consequences

Failure to pay supplemental taxes:

• Causes default of the entire property
• Even if regular taxes are paid
• 1.5% monthly penalty accrues
• Property subject to tax sale after 5 years

Notice of Supplemental Assessment

After a triggering event, the County Assessor mails a Notice of Supplemental Assessment to the new owner. This notice:

• Informs owner of new assessed value
• Shows the supplemental assessment amount
• Precedes the actual tax bill

Timeline

Supplemental Refunds

If the new assessment is lower than the previous assessment, the owner receives a supplemental refund:

This can occur when:

• Property sells for less than assessed value
• Property transfers within family (Prop 19)
• Market decline at time of transfer

Disclosure Requirements

Sellers must disclose to buyers:

1. Supplemental taxes will be due upon ownership transfer
2. Amount depends on difference between old and new assessment
3. Two bills may be issued
4. Bills are not included in impound accounts

Real Estate Agent's Role

Agents should:

• Explain supplemental taxes during the transaction
• Help buyers estimate supplemental tax amounts
• Remind buyers to budget for these additional costs
• Note that they are separate from regular property taxes

Calculating Estimated Supplemental Taxes

Formula:

Supplemental Tax = (New Value - Old Value) × Tax Rate × Proration Factor

Proration Factor = Months remaining in fiscal year ÷ 12