Valuing new construction under Proposition 13
When the voters passed Proposition 13 in 1978, creating base year values for 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 "new construction" gets a new base year value which is added to the old base year of the rest of the property.
Does project cost matter?
The second most frequent question is "Will my new base year value be based on what the project 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.). California law requires that we establish a full market value for the new construction as of the date of completion, so our certified appraisers 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 and her cost is $140,000. We may determine that the addition to the home, when completed, only adds $127,500 in value because the addition was an "overimprovement" for that neighborhood and the owner would not recoup the entire construction cost if she sold the property.
On the other hand, a handyperson might build a 480-square-foot detached garage by himself, using surplus materials, for $14,800. Yet sales of comparable homes with detached garages show that the garage adds $21,600 in full market value to the property. We would enroll the full market value. For property tax purposes, the full market (or full cash) value is based primarily on market conditions, which neither the homeowner nor the assessor can influence.
Replacing a roof, interior or exterior painting, and replacing carpet are usually treated as routine maintenance and are not considered "new construction." However, if the project constitutes renovation or rehabilitation it becomes new construction, and a new base year value will have to be established. If a reassessment is warranted because of the extent of the project, credit is given for the value of the improvements before the renovation so that only the increase in value is assessed.
Should you have any questions please contact Napa County Assessor-Recorder-County Clerk John Tuteur at 707.253.4459 or by e-mail firstname.lastname@example.org More articles can be found at http://www.countyofnapa.org/Assessor/