Why Coastal Orange County Property Taxes Will Surprise You

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Property taxes are an inevitable – though sometimes onerous and always loathed – part of life for homeowners.

And you would think that in coastal Orange County, property taxes would be extremely high. It is, after all, an upscale, wealthy area with highly desirable communities like Newport Beach and Laguna Beach. But you’d be wrong if you thought that.

So let’s dive into property taxes for coastal Orange County, CA.

Orange County Property Tax at a Glance

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Orange County is one of the most densely populated counties in the state of California. It’s also one of the richest counties in the nation. The average effective property tax rate in Orange County is 0.69%, while the median annual property tax bill is $4,499.”

Here are some averages for a home with an assessed value of $250,000 . . .

  • Nationwide Average – 1.070% of assessed home value, $2,675
  • California – 0.730% of assessed home value, $1,825
  • Orange County – 0.690% of assessed home value, $1,725

Surprisingly, Orange County rates are below those for the state of California and well below those across the nation. So now let’s see how this works out, in concrete figures, for coastal Orange County communities in terms of median home value, median annual property tax payment, and average effective property tax rate . . .

  • Dana Point – $861,600 – $5,469 – 0.63%
  • Huntington Beach – $728,200 – $4,529 – 0.62%
  • Laguna Beach – $1,700,400 – $7,880 – 0.46%
  • Newport Beach – $1,787,300 – $10,000+ – 0.56% (approximately)
  • San Clemente – $881,000 – $6,152 – 0.70%
  • Seal Beach – $358,700 – $2,390 – 0.67%

Not too bad, actually, especially with respect to effective property tax rate. It’s just that home values sometimes make the taxes appear higher than they really are.

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Last year, homeowners in Orange County saw “a 2% increase in their property tax bills . . . the third straight year that assessments will increase by the maximum amount allowed under Prop. 13. . . . Under Prop. 13, the landmark tax reform passed in 1978, California property tax hikes are capped at 2% a year. That cap applies even though house prices increased an average of 5% over the past 4½ years.”

“Thanks to new construction and home sales, however, the county tax roll as a whole increased 5.6%, meaning more revenue for local cities, schools, county government and agencies like water districts. . . . However, this year’s percentage gain was the smallest of the past three years – and the second smallest of the past six years – likely representing a leveling off in the appreciation rate of homes and other real estate.”

And that also means that property tax increases will likely slow as well.

How It Works in Orange County

“The treasurer-tax collector collects taxes on all secured and unsecured property in Orange County. The auditor-controller allocates those taxpayer dollars to over 200 taxing agencies in Orange County.

“Secured property tax is imposed on real property owners, based on the property value at the time of the most recent purchase and/or new construction. Unsecured property tax is imposed on the value of personal property, such as business equipment, watercraft and aircraft. California voters passed Proposition 13 in 1978 to limit the initial property tax rate to 1 percent of assessed value, plus the rate necessary to fund local voter-approved general obligation debt.”

For the sale of real property, the tax is reassessed at fair market value, which is usually the purchase price. In addition, it’s reassessed for some new construction, and, in this case, is added to “the property’s existing base value. Otherwise, increases in assessed value for property are limited to 2 percent per year if there has been no ownership change or no new construction.”

There may also be tax charges above the property tax based on value. “[B]onds, special assessments, or fixed charges may also be added to the property tax bill. After the property tax itself, the largest expense on most property tax bills are bonds for school facilities. Community college districts and school districts may place bonds for school facilities on the ballot, and if approved by 55 percent of the voters, then the payment for these bonds are added to property tax bills.”

Property tax is among the top revenue sources for local governments in California. For example, “[i]In fiscal year 2016-17, $6.32 billion in secured property taxes were distributed to county government, cities, schools, redevelopment trust funds and special districts in Orange County. Property taxes are the county government’s main source of revenue to pay for countywide services.”

And here’s the thing to keep in mind in all this . . .

Although Orange is the third most populous county in California, the property tax per capita here is one of the lowest in the state. For Orange County, it is $.06 per $1.00 as opposed to $.24 per $1.00 for Los Angeles County.

Important Points for Coastal Orange County

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But, you may object, what about those high-priced homes and corresponding high property taxes in Coastal Orange County communities, in towns like Laguna Beach and Newport Beach?

The reality is that “[h]omeowners in coastal California cities with higher home prices tend to have lower property tax rates than residents of lower-priced inland cities due to Proposition 13 . . . Homeowners in Malibu and Laguna Beach pay some of California’s lowest property tax rates, while Beaumont, Palmdale and Murrieta pay some of the state’s highest.”

The reason for this phenomenon is the cap on property tax increases under Prop. 13 and the fact that “assessments reset to actual market values only when homes are sold. As a result, the longer people own their homes, the more they benefit from the 1970s-era measure.”

Homeowners near the beach typically tend to stay in their homes longer, and their homes typically tend to appreciate at a faster rate. The upshot, then, is that they ultimately pay a lot less in property tax over time.

“There is a geographic disparity in who benefits from Prop. 13 . . . Residents in expensive coastal cities pay noticeably lower tax rates than residents in cheaper inland cities.” The reason? “Prop. 13 sets the tax rate at 1 percent and limits property tax hikes to 2 percent a year.” So the more and the faster your home’s value increases, the less you ultimately pay in property tax compared to home value.

And that right there is a great reason to buy in Coastal Orange County.

Your First Step Toward Lower Property Taxes

So the way to pay less in property taxes is to buy a home in coastal Orange County. But with the current market conditions, that’s a more formidable task than it was not long ago.

Your best first step then is to contact a premier coastal Orange County agent.