There are so many benefits of adding an accessory dwelling unit (ADU) that sometimes it is easy to lose track of the costs. While the upfront cost is clear, many people do not realize that ADUs can impact their property taxes. This is especially concerning for those in California, many of whom, thanks to Proposition 13, pay far less in property taxes than they would if their home was reassessed. Here is what you need to know about an ADUs impact on your property taxes.
Do ADUs Increase Your Property Tax?
Yes. Adding an ADU to your home in California will increase your property taxes. In most places, the amount that you pay in property taxes is determined by how valuable your property is. The more expensive your home would be to buy, the more you pay in taxes. Of course, many ADUs add a substantial amount to the value of your property.
However, this increase in your taxes is nuanced in California. When you add an ADU to a property in California, it is assessed independently from the rest of your home. When the value is assessed, roughly one percent of the value is added to your current property taxes. So, the ADU and your home are treated as different structures, where the property taxes are combined.
As the average ADU value is roughly $200,000, and one percent of this figure is $2,000, the average homeowner who builds an ADU in California is looking at roughly a $2,000 increase in property taxes per year. You can calculate your own increase if you know roughly the value your specific ADU is likely to be assessed at. Your builder can help you determine what this is likely to be.
Will Building an ADU Trigger a Reassessment?
Under Proposition 13, your home’s property taxes go up very slowly from the time you purchase them. They are only allowed to grow by a maximum of two percent per year from the amount they were last assessed at. Typically, homeowners must get their property assessed for taxes at purchase, and many then go decades without adjusting them. Considering the huge growth of property value in California, this could mean that getting a reassessment increases your property taxes significantly, whether or not you have added an ADU.
Thankfully, under current law, building an ADU does not trigger a reassessment of your property taxes in most cases. However, if this is a concern for you, it is smart to work with a professional ADU construction company to guide you through the process. They can make sure that you do not do anything during the build process to trigger a property tax reassessment.
There are often tax and legal implications to building an ADU that homeowners are unaware of. For all of their benefits–and there are many, building an ADU that is in your own best interests and can maximize the value of your home can be complex. It is wise to have professional guidance through this process. Contacting our ADU design and build team is a great place to start.