New Construction FAQ

Assessable new construction may be any of the following:

1.new structures;
2.area added to existing structures;
3.new items added to an existing structure such as bathrooms, fireplaces, central heating / air conditioning;
4.physical alterations resulting in a change in use;
5.rehabilitation, renovation, or modernization that converts an improvement to the substantial equivalent of a new improvement;
6.land development (grading, engineered building pad, infrastructure).

Examples: new homes, room additions, patio covers, pools, spas, and decks

Under California property tax law, “new construction” is defined in four general categories:

Any substantial addition to land or improvements, including fixtures.

Any physical alteration of any improvement, or a portion thereof, to a “like-new” condition, or to extend its economic life, or to change the way in which the improvement, or portion thereof, is used.

Any substantial physical alteration of land which constitutes a major rehabilitation of the land or changes the manner in which it is used.

Any substantial physical rehabilitation, renovation or modernization of any fixture that converts it to the substantial equivalent of a new fixture or any substitution of a new fixture.

Additionally, removing improvements or fixtures may also be considered new construction. Further clarification about what constitutes assessable new construction may be found in Letters To Assessors 78/188, 79/204, and 80/77.

Reference: Revenue and Taxation Code sections 70″“74.7 and Property Tax Rule 463.

This is one of the most commonly asked questions about new construction. Under Proposition 13, the entire property, land and improvements, will only be completely reappraised when the real estate transfers ownership. The Assessor will typically only add value for assessable new construction.

If the rehabilitation brings about the “substantial equivalent of new” condition of the structure, it qualifies as a new structure and will be reassessed as new. Rehabilitation work may involve substantial changes to the plumbing system, electrical system, framing, or foundation and can extend the usable life (effective age) of a building. An example of this is where a house is torn down to the studs or foundation and rebuilt essentially as new. In this situation, the end result is essentially a new house, not just something remodeled; this may result in a significant increase in the assessed value of the improvements. The assessed value of the land will remain unchanged.

Alterations in landNew construction: adding land fill; development of rural land into residential subdivision or other extensive site preparation prior to building; land leveling; terracing of a hillside; clearing of a brush-covered parcel; irrigation ditches and roads; installing curbs, gutters, and underground storm drains and sewer lines.

Not considered new construction: releveling of existing row crop land; removing orchard trees for replanting; rebuilding of levees or ditches; minor site preparation prior to building.

Alterations in improvements

New construction: a residence converted to a retail store by physically altering walls, installing counters, etc.; conversion of a garage into a living area; complete renovation of an older structure or portion thereof to make it the substantial equivalent of a new building; conversion of a single-family residence to a residence of two or more units; conversion of a portion of a warehouse to office space; conversion of an existing room to a bathroom.

Not considered new construction: maintenance and repairs; replacement of existing kitchen or bathroom cabinets; replacement of air conditioner unit; replacement of roof.

Alterations in fixtures

New construction: a wine bottling line that previously corked and labeled 500 bottles per hour that is updated with new parts so that it now generates 800 bottles per hour. (Fixtures, for purposes of new construction, is defined as an improvement whose use or purpose directly applies to, or augments the process or function of, a trade, industry, or profession; the term fixture is limited to a business fixture and does not encompass household fixtures).

Not considered new construction: any cosmetic refacing that does not raise the quality class or extends the economic life of the fixture or materially increases the usefulness of the structure; repairs and maintenance to a fixture, such as replacing belts, cylinders or rollers on a printing press, or the water pump on a wind machine.

Yes. The following is a list of exclusions related to new construction reassessments:

The construction, installation, or modification of an existing dwelling eligible for the homeowners’ exemption where the activity is intended to make the structure more accessible to, or more usably by, a physically disabled person who is a permanent resident of the dwelling (section 74.3).

The timely reconstruction of property that has been damaged or destroyed by misfortune or calamity where the property after reconstruction is substantially equivalent to the property prior to the damage or destruction. However, to the extent that the reconstruction exceeds the substantial equivalence of the property prior to the damage or destruction (for example, adding a new bathroom), such construction will be assessed and added to the base year value at its full market value (section 70(c)).

Construction on existing structures that are built of unreinforced masonry bearing wall construction to comply with local seismic safety ordinances (section 70(d)); seismic retrofitting improvements or other improvements to existing buildings or structures that utilize earthquake hazard mitigation technologies (section 74.5).

The construction or addition of any active solar energy system installed to provide for the collection, storage, or distribution of solar energy for water heating, space conditioning, heating, production of electricity, or solar mechanical energy. Active solar energy system does not include solar swimming pool heaters or hot tub heaters (section 73).

The construction or installation of any fire sprinkler system, other fire extinguishing system, fire detection system, or fire-related egress improvement in an existing building (section 74).

The improvement, upgrade, or replacement of a tank to comply with federal, state, or local regulations on underground storage tanks (section 70(e)).

The repair or replacement of a substantially damaged or destroyed structure on qualified contaminated real property where the remediation of the environmental problems required the destruction of, or resulted in the damage to, the structure (section 74.7).

Reassessment of a property is required any time new construction occurs (section 71). Thus, new construction, when not considered normal maintenance or repair, is assessable if it adds value to the property. The market value (not necessarily the cost) of the addition or other “new construction” is determined by the assessor and added to the existing property assessment. The value of the existing property is not affected.New construction that adds value to the property represents the incremental value added to the existing property and will generate a supplemental assessment. The existing property, however, is not reappraised; its assessed value will not change except for the annual inflation adjustment of up to two percent.

The new construction will generate a supplemental tax bill (add link) based on the assessed value of the new improvements. The assessment for the new construction is then combined with the existing assessment and becomes part of the subsequent annual tax bills due in December and April.

The Assessor receives a copy of building permits from the various city and county agencies. This is the primary method of discovery for the Assessor. To a much lesser extent, the Assessor may be informed of new construction by a neighbor, another governmental entity, an appraiser from the Assessor’s Office while out in the field or even directly from the property owner. When the Assessor has knowledge of new construction on a property, whether it is permitted or not, the Assessor has a legal duty to assess and add value for the new construction.

The Assessor is mandated to enroll market value for all assessable new construction. The most utilized method by our appraisers to determine the market value of new construction is the cost approach. The staff typically utilizes standardized cost tables, based on annual surveys of new construction professionals. These costs vary by the size of the addition and the quality of the new construction.

Probably not. The cost approach to value assumes components such as profit, supervision and financing which would not typically be included in the construction costs of an owner-builder.

The information assists the assessor’s staff in making a fair assessment of the new construction. The “Property Owner’s Statement on New Construction” asks for a description, the estimated costs, completion date, and a diagram of the new construction.

If the form is completed in full and the information provided seems reasonable and consistent with the information on the building permit, an appraiser will probably not visit your property. However, the “Property Owner’s Statement on New Construction” is subject to audit which would include a visit to your property by an appraiser.

You can notify the assessor’s office of the correct description of your property by submitting a completed Property Data Change Request. A site visit by a county appraiser may be necessary to properly update the records.

If the error is assessable new construction and was completed during your ownership of the property, you may be assessed for the added value of the new construction. If the new construction already existed when you purchased the property, in most cases, your assessment will not increase because the value of the new construction was included in the reported purchase price paid for the property. Your assessment may change in cases where there was no reported purchase price, and the incorrect physical description of the property was used to establish the market value for the property.

First, contact the Assessor’s Office to discuss the assessment. There may be additional information they were unaware of that would result in a lower assessment. If you disagree with the assessed value from an informal review, you may file a formal appeal with the Assessment Appeals Board add link.

As with a change in ownership or any newly assessed values, you have the right to appeal the value if you feel that the assessed value exceeds the market value of your new construction.You may request an informal review of the assessment from the assessor’s office. If the review does not result in a satisfactory conclusion, you may pursue an assessment appeal.

The assessment appeal process is available for disagreements regarding the enrolled value of the property. An independent assessment appeals board from your county hears all appeals and renders a decision. Information concerning the assessment appeals process and deadlines in which an appeal must be filed are included with the value notification(s) sent by the county assessor to the property owner.

The county assessor becomes aware of such new construction because copies of all building permits issued by a county or city are required to be sent to the county assessor. However, not every building permit for new construction results in reassessment. In general, the county assessor’s office processes thousands of building permits annually, yet perhaps less than half result in additional assessments.Additionally, the county assessor, by law, is required to value all new construction, even if a building permit has not been issued. Discovery of new construction occurs in a variety of ways, such as that reported at the time a property transfers ownership, information volunteered by the public, or personal observation by county assessor’s staff performing routine field checks.

Any addition to your existing home, including outdoor additions, such as patio covers, pools, spas, decks, sunrooms and flatwork, would cause a reassessment of the portion of the property that was newly constructed. The assessed value of any existing portion of your property, whether land or improvements, would not be affected by the addition, and thus, would not be reappraised. The increased tax amount based upon the new construction will be determined by the estimated market value of the new construction and will not necessarily be the cost of the new construction. Replacing your shake roof with a tile roof, however, would not be considered new construction since this type of improvement is considered routine maintenance; thus, any increase in value due to this factor would not be reassessable.

No, this is considered normal maintenance and will not cause your assessment to increase.

No. If the existing home is completely demolished except for the foundation and a wall and then rebuilt, it is essentially a new house and will be assessed as such. In valuing the new house, you will receive credit for the value of the existing foundation at its trended base value.

If you built a new house, the entire structure will be considered new construction and will be fully reassessed at current market value. The value added by the new house, less the assessed value of the home torn down, would determine your additional tax burden. To leave one wall standing would make no difference for property tax purposes”“essentially, the improvements would be considered all new construction. Only the assessed value of the land would not change.Depending upon the county in which you live, there may be other laws, however, that require you to leave part of the structure standing for various reasons (i.e. a wall or other defining improvement for zoning or permitting purposes). Thus, it is advisable to review other laws or ordinances in your county that may affect you.

Because rehabilitation work is more structural in nature, it usually is assessable. Reassessable rehabilitation work may involve substantial changes to the plumbing system, electrical system, framing or foundation, and can extend the usable life of a building. The county assessor is responsible for determining, on a case-by-case basis, whether such work involves substantial changes constituting a reassessable event.

Assuming you are remodeling or replacing what already existed, this would typically be excluded from assessment. Remodeling is primarily cosmetic and while it usually improves a building’s appearance, it does not extend the usable life (effective age) of the building. However, if you replaced a half bath with a full bath, the difference in value between the two may be added to the assessment of your property.

If, in the opinion of the county assessor, the kitchen is now the equivalent of a new kitchen, it can be considered newly constructed. If, however, the work is considered remodeling or maintenance, it would not qualify as new construction. The decision whether the work is considered new construction or not is determined by the county assessor on a case-by-case basis.

Additions to existing improvements;

Converting an unfinished basement or attic into a living area;

Adding a garage, sunroom, enclosed patio, or elevator;

Adding a swimming pool, spa, or sauna; or a patio or deck;

Increasing the square footage of a home;

Demolition of an existing structure;

Bathroom ““ the addition of one, or structural changes, upgrading of plumbing and/or electrical systems, changing the floor plan, increasing the size, replacing cabinets, countertops, flooring or fixtures with upgraded material and finishes;

Kitchen ““ structural changes, upgrading of plumbing and/or electrical systems, changing the floor plan, increasing the size, replacing cabinets, countertops, flooring or built-in appliances with upgraded material and finishes;

Taking an entire house or a portion of the house down to studs;

A change in use (for example, converting from industrial to residential use or converting storage space to habitable space);

Upgrading the capacity of plumbing or electrical systems (for example, increasing electrical capacity from 110 volts to 220 volts).

No. Section 73(b)(2) specifically states that “active solar energy system” does not include solar swimming pool heaters or hot tub heaters. An active solar energy system must be a system that uses solar devices to provide for the collection, storage, or distribution of solar energy (for example, produces electricity or heats a hot water heater).

New construction in progress on the lien date shall be appraised at its full cash value on such date and each lien date thereafter until the date of completion, at which time the entire portion of property which is newly constructed shall be reappraised at its full cash value. Annual inflation adjustment on the improvement value should not begin until the lien date following the lien date upon which the complete improvement value is enrolled. Assessments of unfinished new construction are not base year values; rather they are temporary assessments until the construction is completed.

The date of completion is the date the property or portion thereof is available for use. If a project is to be constructed in distinct stages, with portions being completed and available for use before the other portions are constructed, base year values can be separately established for the completed portions without regard to the incomplete status of the total project. If, however, the project is to be constructed as a single facility and the entire improvement will become available for occupancy within a reasonably short period of time, the total project will be handled as construction in progress until all portions of the improvement is available for occupancy. The county assessor uses his or her judgment in determining whether portions of a project can be considered complete for purposes of base year valuation.”Available for use” means that the property, or a portion thereof, has been inspected and approved for occupancy by the appropriate government official, or, in the absence of such approval, when the prime contractor has fulfilled all of the contractual obligations. If neither a government inspection nor a prime contractor is involved, then the newly constructed property is considered available for use when outward appearances clearly indicate that it is immediately useable for the purposes intended. Fixtures are available for use when all testing necessary for proper operation or safety is completed. However, new construction is not available for use if, on the date it is otherwise available for use, it cannot be functionally used or occupied.

Typically, new construction value is added after it is available for use by the owner. Since there may be two distinct stages of your new construction, the family room may be given a base year value before the upstairs is complete if it appears you will not complete the work in a reasonable time frame. It is not proper to continue valuing all of your new construction year after year as construction in progress.

Replacement of:

Central heating and cooling system, or replacement of wall or floor heating with baseboard heaters;

Galvanized waterlines with copper or plastic waterlines;

Old bathroom and kitchen fixtures with modern fixtures;

Wood-framed windows with energy efficient metal or aluminum frames;

Dry rot or termite damaged joists, studs, rafters, stairway, and/or exterior siding;

Molding strips, plaster, drywall, and wall paneling with similar substitute materials;

Wall or floor coverings;

Kitchen or bathroom cabinets, countertops, flooring or fixtures, built-in appliances with items of similar quality;

An electrical fuse box with circuit breakers; or;

Doors, windows, stairs, fences or decks or repairing thereof.

No. The renovation as described would not meet the requirements for new construction because the usefulness of the structure has not changed. While the alterations may suit the particular tenant, it is also very likely that these changes would attract another equally desirable tenant at a comparable rent with no outlay for any further expensive remodeling.

If your mother is severely and permanently disabled, the new construction may be excluded; however, you must file the appropriate claim form, BOE-63,Claim for Disabled Accessibility Construction Exclusion from Assessment (Revenue and Taxation Code section 74.3). Some county assessors provide the form via a link from their website.Disabled persons do not need to own the home for the new construction to qualify for exclusion; however, they do need to occupy the property as their permanent place of residence, and the property must qualify for the homeowners’ exemption.

No. Unlike the homeowner’s disabled person’s accessibility exclusion of section 74.3, the exclusion provided in section 74.6 does not apply to entirely new additions to an existing building or structure, even though the addition may duplicate existing facilities.

The bathroom addition would clearly be within the disabled persons’ accessibility exclusion. Any new additions may duplicate existing facilities if it makes a homeowner’s dwelling more accessible to the physically disabled by providing for the “full use” of the dwelling. Although the addition of a family room does not duplicate an existing room, if the existing living room has limited space that makes it difficult for the disabled person to get around, the addition of a family room would essentially be a duplicate living room necessary to make the dwelling more accessible, and, thus, could be excluded from new construction. It is within the judgment of the appraiser who is inspecting the additions or modifications, however, to determine whether the new construction was, in fact, made with the intent to make the dwelling more accessible to a disabled resident.

The disabled persons’ accessibility exclusion of section 74.3 is only available for new construction work on an existing dwelling to make it more accessible to a disabled person who is a permanent resident in the home. The exclusion does not apply to the purchase of a new home (even with wheelchair accessibility already in place) or the construction of an entirely new dwelling.However, if you decide to build a new home and must construct portions of the house to make it more accessible for your disabled daughter (such as add wider doorways, enlarge bathroom facilities, install special railings or ramps), the added value of any of these features that were specially installed to adapt the home for use by your daughter would be excluded from new construction.

Similarly, if you purchase a new home and renovate portions of the house necessary to make the dwelling more accessible to your disabled daughter, such new additions would be excluded from reassessment. Of course, in either situation, the exclusion would apply only to the extent of that portion specially constructed for your disabled daughter’s accessibility.

If you have further questions, you may find answers in Letters To Assessors (LTA) by searching under the “New Construction” topic in the Accumulative Index of Letters to Assessors at: https://www.boe.ca.gov/proptaxes/pdf/ltaindex.pdf.

The index will direct you to a specific LTA on a subtopic; the LTA number is a link to that particular letter.

Generally when something of value is physically added to real property, the addition is assessed at current market value and this value is added to the existing base year value of the real property. When an active solar energy system is installed, it is not assessed, meaning that the existing assessment will not increase.

No. There is no form or filing required to receive the exclusion. The assessor usually discovers the installation of the active solar energy system by means of the building permit that was taken out. If you think you’ve been assessed for the installation of an active solar energy system, you should contact your county assessor. You may find your assessor’s contact information by clicking on the name of your county via the following link:www.boe.ca.gov/proptaxes/assessors.htm.

The completed form should be mailed to your county assessor. A list of county assessors and their addresses is posted on the California State Board of Equalization website at www.boe.ca.gov/proptaxes/assessors.htm. Under certain circumstances, as the initial purchaser of a new building, your new base year value may be reduced by the value of the active solar energy system, less any rebates or tax credits received. Your builder will be able to provide you with the value of the system and any rebates or tax credits that they received.

No, this is considered normal maintenance and will not cause your assessment to increase.

When an assessable structure is demolished, the Assessor will reduce your assessed value to reflect the demolition. For example, if you demolish a garage, your property assessment will be reduced by the assessed value attributed to the garage.