How Adding On to Your Home Affects Property Taxes in Orange County: New Construction vs. Maintenance

Are you feeling like you’ve outgrown your home but don’t necessarily want to sell? Whether it’s adding a new room or building an accessory dwelling unit (ADU), expanding your home can be a great way to get the space you need without leaving your neighborhood. But before you start planning your addition, it’s important to understand how it will affect your property taxes here in Orange County.

What You Need to Know About Taxes for New Construction in California

In California, new construction is taxable, but the way it affects your property taxes may not be as straightforward as you think. Here’s what you need to know:

1. No Full Reassessment: Adding a new room or building an ADU does not trigger a full reassessment of your entire property. Your existing home’s value, which is capped by Proposition 13, will remain the same.
2. Supplemental Assessment: When you complete new construction, the value of the new addition will be added to your current property value, and you’ll receive a one-time supplemental assessment based on that added value. For example, if your home is worth $1 million and you add a $150,000 ADU, your new property value will be $1.15 million.
   • In this case, your one-time supplemental tax bill would be about $1,500 (calculated as 1% of the added value). This is a one-time charge you’ll receive once the construction is completed.
3. Ongoing Taxes: After the supplemental assessment, your property taxes will reflect the new total value of your home, which means higher annual taxes going forward. For example, your property taxes will now be based on $1.15 million, not just the original $1 million.
4. What’s Exempt from Reassessment: Certain upgrades are excluded from reassessment, such as:
   • Solar energy systems
   • Seismic retrofitting
   • Improvements for accessibility for disabled individuals
   • Fire sprinkler or detection system installations

These types of upgrades won’t trigger a supplemental assessment, saving you money on taxes.

Why Additions Like ADUs Are a Smart Choice

With property prices on the rise, adding an ADU or additional space can increase your home’s value and give you the extra room you need. Plus, it could generate rental income if you choose to rent it out.

However, it’s important to factor in that your property taxes will increase as a result of the added value. While the one-time supplemental assessment is a manageable expense, the ongoing increase in property taxes is something to keep in mind as you plan your project.

Want to Learn More?

If you’re considering expanding your home and want to know more about how new construction is taxed in Orange County, I recommend checking out the Orange County Assessor’s Office website for additional resources.

You can also download a helpful PDF guide that explains the difference between taxable new construction and non-taxable maintenance or replacement. It’s a great way to make sure you’re fully informed before you start your home improvement project.

Taxable New Construction vs. Non-Taxable Maintenance or Replacement

Need Help Navigating the Process?

If you’re ready to add on to your home, or if you’re unsure whether expanding your current space or buying a new home is the best move for you, feel free to reach out! As an experienced real estate professional in Orange County, I’m here to guide you through the process and help you make the right decision for your family and your budget. I can recommend experienced contractors to help you with your addition or ADU.

Give me a call or send me a message to get started today!