If you’re a California homeowner who’s thinking about building an ADU, you should understand how an ADU is likely to affect your property taxes in the future. We’ve got all the answers for you here.
How do property taxes work in California?
In California, property taxes are calculated based on the assessed value of your home, not the current market value of your home. Under Proposition 13 (a state constitutional amendment passed by the voters in 1978), annual property tax increases are capped at a maximum of 2%, even if the value of your home increased by more than 2% during that time.
For this reason, the assessed value of your home is likely to be close to the value of your home at the time you purchased it. Longtime homeowners have therefore locked in relatively low property taxes.
In most California cities, including those in the Los Angeles area, the combined city-county property tax rate is about 1%. So if the assessed value of your home today is $600,000, then your annual property tax payment would be $6,000.
How much does an ADU increase property taxes?
Since properties are only reassessed when you move or when new construction on the property is completed, some homeowners worry that building an ADU at their home will lead to a sharp increase in their property taxes.
However, this is not the case. The construction of an ADU does not trigger a complete reassessment of the value of your home. Instead, the county tax assessor will do a “blended assessment” of your property.
In a “blended assessment”, the assessor simply estimates the value of the ADU, most likely based on the cost of building the ADU. The assessor adds this number to the current assessed value of the property in order to create a new assessed property value. The value of the primary home is not reassessed.
This means that once you complete an ADU project, your property taxes will only increase based on the additional value created by your ADU. The taxes you pay on the primary home will not change.
So to go back to our previous example: let’s say that you just completed an ADU project, and the ADU cost $200,000 to build. If your combined city-county property tax rate is 1%, you’d pay an additional $2,000/year in property taxes going forward. This amount would be added to the $6,000/year you were already paying, but the $6,000/year payment would not change, because the $600,000 assessed value of the main house would stay the same.
The Revival Homes ADU Budget Calculator can help you take a closer look at the cost of an ADU in Los Angeles.
The bottom line: if you’ve lived in your home for many years and pay low property taxes as a result, you’ll be able to keep your low property taxes going forward.
How much does an ADU add to home value?
While it’s true that your ADU project will result in modestly higher property taxes, the tax increase is small compared to how much value an ADU adds to your home.
In the Los Angeles area, an ADU will add roughly $500-600/sqft to your property value. So you can anticipate that a typical 1-bedroom, 600 sqft ADU will be worth $300,000 to $360,000, and will rent for $1,700 to $2,200/month.
Of course, the value of an ADU is very dependent on where in the Los Angeles area you live. For a more detailed look at how much value an ADU adds in Southern California, check out our ADU Home Value and Rent Estimator.
How Revival Homes can help
We’re here to support you at every stage of your ADU project. If you have additional questions about ADUs and property taxes, or want to discuss your ADU project with an expert, feel free to book a free consultation with us.