Santa Clara County comprises San Jose and Silicon Valley, making it one of the wealthiest counties in America. With almost 2 million people living within its boundaries, it’s a popular place to stake a claim — but, like any other place to acquire real property, you’ll want to have an in-depth understanding of the Santa Clara County property taxes.
4 Things Investors and Homeowners Need to Know About Santa Clara Property Tax
- How Property Taxes Are Calculated
- Property Tax Rates for Santa Clara County
- How to Pay Your Taxes
- How to Lower Your Santa Clara Property Taxes
Though images of cable cars and the Golden Gate Bridge are what come to mind for most people when you mention the San Francisco Bay Area, it’s actually Santa Clara County that is the epicenter of its population and a lucrative hotspot for area investors.
4 Things Investors and Homeowners Need to Know About Santa Clara Property Tax
So that you don’t have to wade through the dense information provided by the Santa Clara County Assessor, we’ve compiled a list of the most pertinent information, along with some helpful tips to limit the losses inflicted by the assessor and collector despite their good intentions to leverage local taxes to fund the incredible infrastructure of this beautiful, highly-desired 6th largest city in California.
1. How Property Taxes Are Calculated
Property taxes are based on real property values. The tax bill for county fiscal year 1975-76 set the baseline value of each and every property and its full cash value — unless it has seen a change in ownership since then, in which case the assessed value will be considered.
However, the assessed value will increase every year, albeit by no more than the California CPI (Consumer Price Index) or 2%, whichever is lower. The lien date for recalculating the value of each property based on this increase is January 1st.
That said, you might consider contesting the assessed value of your home through a property tax appeal if you feel that the value on record is inaccurate. Keep in mind this could also work to your disadvantage, so you should first hire a home inspector (and maybe even a second one) to gauge the value of your home before calling the County Assessor’s Office and starting up with the Assessment Appeals Board, the panel in charge of handling appeals to tax assessments based on the county fiscal year of 1975-76.
2. Property Tax Rates for Santa Clara County
The tax rate itself is limited to 1% of the total assessed property value, in addition to any debts incurred by bonds approved by voters. Some property, and/or parts thereof, may be subject to a special exemption—such as those for veterans or non-profit organizations (like churches or hospitals).
Currently, the average tax rate is 0.79%.
Keep in mind that the exact rate of voter-approved additions to your taxes will vary, determined in part by city lines—that is, whether you live in San Jose, Saratoga, Los Gatos, Gilroy, Los Altos, or Palo Alto—and school districts (like any large county, there are dozens of them).
Then, of course, there may be special districts—like recreational open space (parks) and Santa Clara Valley water districts—and publicly funded projects like transportation, hospitals, libraries, and the fire department (to name a few).
Like any place, Santa Clara County and its environs use tax revenue to provide necessary services and beautify public spaces. If you’re wondering what exactly happens with the property tax revenue accrued in part through your contribution, the county budget is open for public review and residents can participate in city council meetings. The board of supervisors is required to conduct their affairs with transparency.
Sometimes, a school district or special district will impose a parcel tax on each and every property to fund a specific project, proposition, or measure. This parcel tax is a uniform dollar amount regardless of lot size or property value, so critics argue that they put a disproportionate burden on smaller properties; thankfully, parcel taxes must be approved by a 2/3 majority vote.
If you want to see the exact rate of taxation for your property, we suggest you consult Section B of the County of Santa Clara Compilation of Tax Rates and Information. There are over 815 unique areas, so don’t assume you can easily calculate your rate based on the general tax rates listed in Section A. You’ll have to look it up. There might also be a supplemental tax listed that you were not aware of until seeing it in print.
3. How to Pay Your Property Taxes
Payment for unsecured property tax is due on January 1st and becomes delinquent after August 31st. Though this usually relates to personal or business property such as boats, berths, and office equipment, it can sometimes relate to your real property, especially if it changed ownership, so be sure to consult your tax advisor.
You can make your payment for secured property taxes in two installments. The first is payable as of November 1st and must be paid any time before December 10th, on which it becomes delinquent. The second is payable February 1st and can be paid any time before April 10th, on which it becomes delinquent. While you can make the payment for your tax bill in one lump sum, the ability to make a partial payment is a boon to many property owners in the area.
Be sure to provide payment for your taxes by the due date because the penalty rate is a steep 10% of the tax, even if you pay it before the end of the fiscal year. Anything unpaid after July 1st of the subsequent fiscal year will see a monthly addition of 1.5% of the defaulted tax until your parcel is redeemed.
Secured tax bills are mailed out by the Santa Clara Department of Tax and Collections on November 1st to the address on file with the Santa Clara Assessor, so make sure they have your preferred address, especially if your Santa Clara address is a rental property, and your primary residence is elsewhere.
Take note of the fact that bills are mailed on the same day the tax is due and payable, and that they must be paid before December 10th, leaving you with less than 40 days to take care of payment in a timely manner before entering delinquency.
You can mail your taxes or take a trip to the Santa Clara County Tax Collector to make your payment in person (though the city of Santa Clara does not have a particularly remarkable or interesting civic center).
Their address is:
Santa Clara County Assessor
70 West Hedding St.
San Jose, CA 95110
Making Payments Online
Thankfully, the Santa Clara tax collector’s office has entered the 21st century—after all, Silicon Valley is within its jurisdiction—and you can pay your property taxes online.
Keep in mind that, if you use plastic to pay your tax bills (debit or credit), you’ll pay a 2.25% convenience fee (which is rather inconvenient, considering that the median property tax amount at the time of this article is $5,275, yielding a $131 fee).
Questions, Comments, Concerns, and Address Changes
Any changes to the address on file with the Assessor must be received in writing directly to the County Assessor.
If you haven’t received your bill within the first week of November, log online to view your taxes. Taxes must be paid whether or not you received a bill, so you cannot blame the postal service.
If you have any questions, refer to the following list to find the right point person—unless you like being shuffled around and subjected to tasteless jazz (actual hold music may vary).
- Property value: (408) 299-5300
- Property tax exemptions: (408) 299-6460
- Change of mailing address: (408) 299-5526
- Property ownership records: (408) 299-5500
- Payments: (408) 808-7900
- Accuracy of tax bills: (408) 808-7979
- County finances (budget, rates, etc.): (408) 299-5200
Please note that we have not included information about what floor each department is on, but if you really want to visit the Assessor’s Office in person, consult the Sources of Additional Information Section in the aforementioned Compilation of Tax Rates and Information.
4. How to Lower Your Santa Clara Property Taxes
“How do I lower my tax liability?” This is what every investor wants to know, no matter where they’re putting down rentable (or flippable) roots. Thankfully, Santa Clara also offers possibilities for minimizing revenue losses to taxes.
Of course, before anything else, you’ll want to reduce financial risk and sever yourself from any potential engagement regarding your property.
It’s time to form an LLC (if you don’t have one already). A limited liability company will not necessarily lower your property taxes, but it’s a must-have for anyone who owns rental property or buys and sells properties. You don’t want any kind of unfortunate incident occurring on your property to come back and haunt you, like a lawsuit that endangers your personal assets (such as the rental property itself, liquid assets, or other properties). An LLC protects you by, as its name suggests, limiting the amount of liability that can fall on your shoulders.
Moreover, when it comes to taxes, creating an LLC will protect you if for some reason your Santa Clara property tax goes unpaid; as they say: hope for the best, plan for the worst. You never know if a medical issue, insolvency, forgetfulness, or lack of a renter could facilitate unpaid bills. Additionally, if for some reason you do pay your taxes and the Santa Clara Tax Collector does not receive them, you’ll be the one to blame.
The exact rules and regulations of an LLC are mandated by the state wherein the LLC operates, so they will vary from location to location. It’s important to keep in mind that there may be some instances where an LLC will not protect you from liability, so it’s good to direct your questions to a qualified individual who can help you through the process of setting up an LLC.
An LLC is a must for real estate investors, whether they’re renting their properties or flipping them to a new owner (either one can present possibilities for incurring a lawsuit).
Understand Your Taxes
Understand the different kinds of real estate taxes you will pay. The exact nature (and, therefore, amount) of those taxes will vary depending on your business, so it’s good to have a general overview of the different property tax categories.
Some taxes are triggered by the sale and/or transfer of your Santa Clara property. Capital gains tax is the tax you pay on profits you make from selling your property. If you sell it for a profit, that’s a gain; if you sell it for a loss…that’s a loss (and this can be part of your overall business strategy).
At the federal level, properties you’ve held onto long-term will generally have more favorable capital gains rates ranging from 0% to 20% (that’s right: it is possible to avoid paying the tax entirely based on circumstances, income, and the value of the home). On the other hand, short-term properties, such as properties you’ve purchased to rehab and sell, will see your profits suffering from a higher rate of anywhere from 10% to 37% (also based on income).
Selling a business property means you will have to pay taxes on any depreciation you claimed while owning it, whereas selling a home might entitle you to a special exemption of up to $500,000 for married couples filing jointly.
However, this number doesn’t quite help homeowners in Santa Clara, especially if they’ve made major improvements to their property and have sold it for a decent profit, since the median home value is well over one million dollars. To that end, real property owners may want to take advantage of vehicles like the 1031 exchange, which allows you to place profits of the sale into a similar investment and avoid paying the capital gains tax.
As you can see, the whole issue of capital gains tax is very complex, and it’s best to consult a qualified professional about how you can minimize your losses. This is especially true in California, where exemptions may not adequately match profits from the sale of your home and, at the state level, there are no special rewards for long-term holdings.
When you sell a property, it’s also important to consult with a real estate agent and tax advisor for help negotiating how taxes (like property taxes) will be split between the buying and selling parties for the current year.
Other Taxes and Fees
There will also be a transfer tax based on the value of the property, and the rate will vary throughout California. For Santa Clara County, the rate is $0.55 per every $500, although that excludes any liens or encumbrances. Some parts of Santa Clara County — San Jose, Palo Alto, and Mountain View, specifically — also impose an additional city conveyance tax of $1.65 per every $500. In addition to the documentary transfer tax, there will be a whole other range of fees for recording, title searches, and certifications, though those fees may not add up to more than $150 or $200.
Of course, with all these taxes and fees circling like sharks around the profits of your real estate investing, it pays to consult with a qualified individual about tax strategies you can use to minimize your losses. You can browse articles online, check out books, and even attend lectures about the topic, but the fact of the matter is that most advanced tax strategies can only be achieved with the help of a professional. This is especially true if you are busy with all the other concerns involved in real estate investing, such as finding new properties, managing their rehab, and marketing and selling them.
How Does Santa Clara County Compare to Other Cities in California and the United States?
Despite the horror with which most Americans regard California home prices, real estate taxes throughout the state rank 16th among the 50 states (and DC) at around 0.79%. Throughout the state, this means that the average person pays a little less than $1,500 every year. Compared to $1,900 in Florida, $3,200 in New York, $4,000 in Connecticut, and more than $4,700 in New Jersey (the highest), that’s really not so bad.
Of course, if you really want to avoid property taxes, your best bet is to settle in Hawaii—though everything else you buy is going to be a lot more expensive (remember, it’s in the middle of the ocean). Property taxes there come in at around $500.
However, there is no denying that the Santa Clara Valley is a rather expensive bubble within California. Home prices are mostly unaffordable to the locals unless they’re making six or even seven-figure salaries at one of the tech giants in the area.
For many residents of the Bay Area, affordable housing is an elusive unicorn that can only be captured by moving farther out, like to Santa Cruz County to the south and Sonoma County to the north. The outcome of this middle-class exodus and related influx of young professionals has created much discussion among investors about the market. As mentioned, the median dollar amount of property taxes paid by property owners in Santa Clara County is more than $5,000. That’s higher than the state average of any state in the United States.
Let’s face it: the richest companies in the world are there. The scenery is beautiful. The weather is perfect. California (and the Bay Area in particular) is basically the American version of paradise, and it comes with its price tag — a price tag that translates into higher property taxes. That said, the benefit of an experienced tax advisor to minimize the negative impact of real estate taxes to investors with their eyes on Santa Clara is inestimable.
Additionally, investors looking at the area might consider the value of multifamily housing, as it may offer some advantages over the single-family house.
Multifamily Properties in Santa Clara County
As home prices in California (and Santa Clara County in particular) continue to climb, apartments may become more appealing to the influx of tech workers flooding the region to find careers with companies like Google, Apple, and Facebook.
Moreover, the median age in the area is 37 (slightly lower than the national average of 38), indicating the presence of more young adults who may be reluctant or unable to enter into homeownership due to financial inability or lack of need. You don’t really need more than a nice apartment if you’re single or a young couple, and in fact, younger people often prefer the closer proximity to urban venues afforded by apartment living.
There are many benefits to investing in multifamily units, some of which involve tax strategies, and some of which involve facilitating better cash flow and easier property management.
It’s important to understand the ins and outs of multifamily housing in Santa Clara before diving in; you won’t regret the benefits of consulting with someone qualified who can guide you through the particulars of this type of real estate investment.
Part and parcel of getting involved in multifamily housing is a detailed understanding of landlord-tenant law. There are a number of rules around advertising, showing, and renting out property, the negligence or trespass of which can result in serious lawsuits. For example, in addition to the usual range of federally protected classes (national origin, race, religion, color, familial status, handicap, disability, and gender), Santa Clara residents are protected by state laws from discrimination against their person because of sexual orientation, gender identity, gender expression, source of income, genetic information, medical condition, and marital status.
Of course, if worse comes to worst, you’ll need to evict your tenants, which is always a dicey process in every state. In California (like most places), you’ll need to file the appropriate forms and serve advanced notice. Santa Clara residents who have lived on your property for more than a year will have 60 days to evacuate (that’s two months).
Santa Clara County Property Taxes
California is a little taste of paradise, and Santa Clara County is right in the heart of it.
The West Coast has been appealing since the Southern Pacific Railroad dropped settlers off into the agricultural wonderland of the Santa Clara Valley, long before the Googleplex. Fast forward to today, and we see that the tech boom, along with the natural appeal of the area, has created a hot (if not occasionally volatile) market of beautiful homes in a desirable environment.
While property taxes are high, an experienced tax advisor can help investors navigate the costly waters of home ownership in the area. Moreover, investors might consider multifamily housing as a means of protecting the value of their assets against property taxes through increased cash flow and specialized tax strategies.
As a real estate investor, you’re most likely too involved in your business to get bogged down in the particulars of real estate tax laws — though you probably wish you could do something about it when you get your tax bills in the mail.
Having a clear overall view of the situation is important for guiding your decision-making, but when it comes to managing the details of your investments and minimizing tax-related damage, your best bet is to work with a qualified tax advisor. Contact Anderson Advisors today for help protecting your real estate investments and minimizing your tax liability.
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