Photo credit: John Yu

All About ADU Property Taxes

It’s undeniable that an accessory dwelling unit is a great investment certain to increase your property’s value. But some homeowners are concerned about the impact this value boost may have on their property taxes.

In the following blog post, we’ll tell you everything you need to know about ADUs and property taxes: how property taxes are assessed and calculated after an ADU, how much they’re likely to increase, and your responsibilities as a homeowner.

Will adding an ADU increase the amount of property taxes I owe?

The short answer is yes, but not by much.

Usually, the tax increase equals 1% of the value of the improvement. For example, if you build an ADU for $150k, your property taxes will increase by $1,500 per year. If you pay monthly, that works out to $125 per month.

Most homeowners are able to absorb the extra cost without difficulty. And if you rent out your ADU, the rent payments you receive will more than cover it.

Keep in mind that the tax amount may increase over time, but thanks to Prop 13, the increase will never exceed 2% per year.

How and when is the ADU’s value assessed?

Although it may vary from one jurisdiction to another, in Los Angeles County the ADU is assessed at market value using standardized appraisal methods. These may include looking at the construction cost and comparing sale prices of similar properties.

Market value is determined upon completion of the unit.

Does adding an ADU trigger a reassessment of the entire property’s value?

No, it only triggers an assessment of the ADU’s value, which is then added on to the current assessment of your home. This is known as a blended assessment, which means the value of the ADU is assessed independently, while the previously assessed value of your main house remains the same.

You still get to keep your Prop 13 benefits when you add an ADU!

What information does the homeowner need to provide?

You may need to provide proof of construction costs to the County Office of the Assessor. Contact your local Office of the Assessor to determine what’s required in your area.

Conclusion

In conclusion, building an ADU will slightly increase your property taxes. After all, property taxes reflect your property’s value, which is always increased by adding an ADU. However, most homeowners agree that the benefits of accessory dwelling units outweigh this drawback.

While the above blog post is meant to answer some common questions about ADUs’ impact on property taxes in California, we are not tax professionals. Consult a tax expert to determine the best course of action for your property and situation.

Though we may not be tax experts, we are ADU experts! When you’re ready to invest in your property and build your dream unit, contact Otto for a free consultation.