Does Building an ADU Increase Your Property Taxes and Home Value in California?

If you’re a California homeowner considering building an Accessory Dwelling Unit (ADU), it’s essential to understand how this investment will impact your property taxes and overall home value. In this guide, we break down how property taxes work in California, explain the blended assessment process when adding an ADU, and detail how an ADU can boost your property’s value and rental income potential.

Understanding Property Taxes in California

Property taxes in California are calculated based on the assessed value of your property rather than its current market value. This system is governed by Proposition 13, passed in 1978, which caps annual property tax increases at a maximum of 2% regardless of market fluctuations.

• Assessed Value vs. Market Value: Your property’s assessed value usually reflects the price you paid when you bought it. Long-term homeowners often enjoy low property taxes because of this.
• Typical Tax Rate: In most California jurisdictions, the combined city-county tax rate is around 1%. For example, if your home is assessed at $600,000, you’d typically pay about $6,000 per year in property taxes.

For more insights into the home-building process and related tax implications, check out our guide on How to Build an ADU in the Bay Area: A Complete Step-by-Step Guide with Essential Resources.

Does Building an ADU Increase Property Taxes?

A common concern is whether adding an ADU will trigger a significant jump in property taxes. The good news is that building an ADU does not result in a complete reassessment of your main home.

• Blended Assessment: When you add an ADU, its value is assessed separately based on construction costs and then blended with your current property’s assessed value. The tax on your primary residence remains unchanged.
• How It Works: The tax assessor estimates the ADU’s value, adds that to your existing property’s value, and recalculates your tax bill based solely on the new construction cost.

Example:

• Suppose your primary home is valued at $600,000 with annual taxes of about $6,000.
• If you construct an ADU costing $200,000, the assessor will add this value to your property’s assessed value.
• With a typical tax rate of 1%, you’d see an increase of roughly $2,000 per year in taxes, bringing your total to around $8,000 per year—and your main home’s tax remains unchanged.

For more details on regulatory changes and ADU benefits, see our article on SB 1211: More ADUs for California with Less Red Tape.

How Much Does an ADU Add to Your Home’s Value?

While an ADU may increase your property taxes slightly, it also significantly boosts your home’s overall value and offers strong rental income potential.

• Value Addition: In high-demand areas like Los Angeles, an ADU can add approximately $500–$600 per square foot to your home’s value. For example, a 600 sq ft ADU might increase your property’s value by $300,000 to $360,000.
• Rental Income Potential: Beyond increased value, an ADU can generate steady rental income. In the Los Angeles market, a typical 1-bedroom ADU can rent for between $1,700 and $2,200 per month.

For real-world examples and to see how ADUs have boosted property values, visit our Projects page.

Additional Tax Benefits and Considerations

• Deferred Tax Impact: If you complete your ADU project after January 1st, the new assessed value will be reflected in the next annual tax bill, providing some flexibility in planning.
• Rental and Business Deductions: Renting out your ADU can offer additional tax deductions, including expenses related to maintenance, depreciation, and even certain financing costs.
• Capital Gains Implications: When selling your property, the construction cost of the ADU is added to your tax basis, potentially reducing your capital gains tax if the property qualifies as your primary residence.

For more detailed financial analysis on how ADUs influence your tax situation, our post How to Finance Your ADU in 2025: A Comprehensive Guide to Funding Your Accessory Dwelling Unit provides additional context.

How Arch General Construction Can Help

At Arch General Construction (AGC), we specialize in designing and building ADUs tailored to your property, needs, and budget. We help you navigate local zoning laws, secure permits, and choose the best financing options so your ADU project is a success.

• Full-Service ADU Support: From concept to construction, our team manages every step of your ADU project—whether you’re considering a prefab or custom build. Learn more about our approach on our About page.
• Expert Guidance: Our experienced professionals provide insights into the permitting process and construction best practices. For tips on contractor selection and project management, read How to Choose the Right Contractor for Your New Build or Renovation.

Contact us today via our Contact Us page to discuss how we can help you build an ADU that not only enhances your living space but also adds significant value to your property.

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