Adding an Accessory Dwelling Unit (ADU) to your property in California, especially in high-demand areas like the Bay Area, impacts your property taxes. However, thanks to Proposition 13, this impact is generally limited to the value of the new construction itself, not your existing home.

How ADUs Affect Property Taxes Under Proposition 13

Proposition 13, enacted in 1978, caps property taxes at 1% of a property's assessed value and limits annual increases to 2% unless there's a change in ownership or new construction. Building an ADU counts as new construction under California Revenue and Taxation Code Section 70, triggering reassessment—but only for the ADU itself. Your existing home's assessed value remains unchanged.

Blended Assessment: Calculating the New Tax

The county assessor evaluates the market value of the ADU based on construction costs or comparable market sales, adding this value to your property's existing assessed value, resulting in a "blended assessment." According to Revival ADU, the blended assessment accurately reflects the added value from new construction.

Example:

• Original assessed value: $500,000
• ADU construction cost: $200,000
• New total assessed value: $700,000
• Annual property tax (1% rate): $7,000

In this example, the property tax increases by $2,000 annually due to the ADU.

What Qualifies as New Construction?

Under California law, new construction includes:

• Any addition to real property, such as building an ADU.
• Major alterations converting the property to a different use.

Routine maintenance, such as repainting or replacing a roof, generally does not trigger reassessment, as detailed by the California Board of Equalization.

Exemptions and Exclusions

Certain improvements may not trigger reassessment, including:

• Seismic Safety Improvements: Earthquake-resistant enhancements.
• Energy Efficiency Upgrades: Installing solar panels.
• Accessibility Improvements: Adding wheelchair ramps or similar accommodations.

These exemptions require understanding California property tax law nuances, and consulting experts like JD Teter Law can provide clarity and ensure appropriate application of these exemptions.

Timing of Assessment

New construction is assessed at market value upon completion. Partially completed projects as of January 1 receive a partial assessment, with full assessment upon completion, as outlined by the California Board of Equalization.

Disputing an Assessment

If you believe the assessment is excessive, you can:

• Request an informal review within 30 days of the assessment notice.
• File a formal appeal with your county assessment appeals board if unresolved.

Strategies to Minimize Tax Impact

• Cost-Effective Construction: Opt for materials and designs that minimize construction costs, thereby reducing the reassessment value.
• Consult Professionals: Tax professionals and property tax consultants can help you navigate applicable exemptions or exclusions and minimize potential tax impacts effectively.

Working with experienced construction partners like Arch General Construction, who specialize in ADU planning and construction, can streamline the process. Their collaboration with innovative, modular ADU solutions such as Boxabl further enhances cost-effectiveness and optimizes subsequent tax implications.

Sources:

1. California Revenue and Taxation Code Section 70
2. Understanding Proposition 13 - Santa Clara County Assessor
3. Revival ADU: How an ADU Impacts Property Taxes
4. California Board of Equalization - New Construction
5. JD Teter Law: How New Construction Affects California Property Taxes
6. Boxabl Partnership - Arch General Construction
7. Arch General Construction Services

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