New Construction
Understanding What Constitutes New Construction and How It Affects Property Tax Assessments
Description
Under Revenue and Taxation Code section 70, “new construction” includes:
- Any addition to land or improvements, including fixtures
- Any alteration of land or improvements that constitutes a major rehabilitation or converts the property to a different use
- A major rehabilitation of an improvement or fixture occurs upon any rehabilitation, renovation, or modernization that converts the improvement or fixture to the substantial equivalent of a new improvement or fixture.
New construction is generally assessable and may increase the taxable value of a property. The impact on a property tax assessment varies depending on the work being performed. Upon completion of the new construction, the assessor determines its fair market value and a base year value is established.
If the new construction is only partially completed on the lien date (January 1), the assessor is required to estimate the fair market value of the new construction in its state of completion on that date. This continues each successive lien date until the new construction is completed. Upon completion, the entire portion of the property which is newly constructed is reappraised at its fair market value and a base year value is established.
The removal of improvements or fixtures may also be considered new construction. A fixture, 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.
Normal maintenance and repairs are typically not considered new construction and not subject to assessment.
Exclusions
Generally, the completion of new construction is an assessable event unless it is specifically excluded from reassessment. A new construction exclusion generally means the property owner who installs the improvement will not be assessed for it. In general, an improvement that was initially excluded will affect the property’s assessed value only after the property undergoes a change in ownership and a new base year value is consequently established.
List of New Construction Exclusions
| Code | Description | Form Required | Filing Period | Time Period of Exclusion |
|---|---|---|---|---|
| 69.4 | Transfer of base year value; environmentally contaminated property | Yes | Submit federal or state proof of contamination with assessor | Until establishment of new base year value |
| 70(c) | Disaster Relief | No | Until establishment of new base year value | |
| 73 | Active solar energy systems | No | Until establishment of new base year value | |
| 74 | Fire systems | No | Until establishment of new base year value |
Resources
The following resources provide information and guidance on New Construction:
Letters To Assessors (LTAs)
LTAs provide an ongoing advisory service for county assessors and others interested in the property tax system in California. The letters present Board staff’s interpretation of rules, laws, and court decisions on property tax assessment. The following LTAs pertain to assessment or procedural issues involving new construction in California.
Letters To Assessors
| Title | Letter to Assessor |
|---|---|
| Attorney General Opinion | 80/74 |
| Builder’s Exclusion | 83/132, 2014/005 |
| Construction in Progress | 80/77, 81/95, 2017/042 |
| Contaminated Property Exclusion (Proposition 1) | 99/23, 2003/078, 2007/047 |
| Decline in Value Determination | 2009/024 |
Forms
These sample forms are for informational purposes only. To obtain a form, please visit Cal Assessor e-Forms or contact your local county assessor’s office
| Title | Form |
|---|---|
| Disabled Persons Claim for Exclusion of New Construction | BOE-63 |
| Disabled Accessibility Construction Exclusion from Assessment (Claim for) | BOE-63-A |
| Seismic Safety Construction Exclusion from Assessment (Claim for) | BOE-64 |
Property Tax Implications of New Construction
1. How does new construction impact my property’s assessed value?
When new construction is completed, it generally triggers a reassessment of the property. The assessor will determine the new base year value for the property, which represents the increased market value, if any, resulting from the new construction. The existing structure’s value remains unchanged, and only the newly constructed portion will be reassessed.
2. If I expand my home, what effect will that have on my property taxes?
If you enlarge an existing structure, such as expanding your family room, adding a new kitchen area, or installing additional rooms like patios or decks, your property taxes will likely increase. The reassessment will apply only to the newly constructed parts of your property, while the value of the existing areas will remain the same.
3. Will my property taxes increase if I replace my roof with new materials, such as replacing a shake roof with tiles?
Replacing your roof with more durable or energy-efficient materials, like switching from shake roofing to tile roofing, typically qualifies as routine maintenance and does not count as new construction. As a result, your property taxes are unlikely to change based on this kind of improvement.
4. If I demolish my current house and rebuild it, will I see a rise in my property tax assessment?
Yes, if you demolish your existing home and rebuild it, the new construction will be considered an entirely new structure and will be reassessed at current market value. The increase in property taxes will reflect the new house’s value minus the value of the old structure that was torn down.
5. Will leaving part of my existing house standing affect the reassessment if I rebuild?
Leaving part of the house standing, such as a single wall, will not affect the reassessment process. The new house will still be considered new construction in its entirety. Only the value of the land will remain the same. Local zoning or permitting laws may have additional requirements for such partial demolitions.
6. What happens if my construction is still in progress at the time of reassessment?
If the new construction is not yet finished by the lien date (January 1), the assessor will determine the fair market value of the partially completed property. This assessment will be updated each lien date until the construction is completed. Once the construction is done, the full property will be reassessed, and a base year value will be established for the entire property.
7. How is “completed” construction defined for tax purposes?
The construction is considered complete when the property or any part of it is available for its intended use. If the construction is happening in stages, each section that becomes usable will be reassessed separately. If the entire project is expected to be completed in a short time, the whole property will be handled as under construction until all parts are ready for occupancy.
8. Can I exclude certain types of improvements from being reassessed due to disability or other exemptions?
Yes, in certain cases, improvements made to accommodate a person with a disability may qualify for an exclusion from reassessment. The exclusion applies to the portion of the construction that is specifically designed to improve accessibility for a disabled individual. To qualify, you must submit the appropriate documentation and claim form to your local assessor.
9. Can I qualify for an exclusion if I build a new accessible home for a disabled child?
If you build a new home or make modifications to an existing property to make it accessible for a disabled child, certain construction costs may be excluded from reassessment. However, this exclusion only applies to improvements made to an existing dwelling to accommodate the disabled individual and does not cover the entire cost of building a new home.
10. How do assessors discover new construction, and is this process automatic?
Assessors typically learn about new construction through several sources, including building permits filed with local agencies, business property statements, aerial photographs, and field inspections. While some new construction may be flagged automatically through these sources, assessors also perform routine checks to identify any unreported developments.
11. Is rehabilitation work that involves major structural changes treated as new construction for tax purposes?
If rehabilitation work significantly alters the structure of a property, such as replacing the plumbing, electrical systems, or foundations, this can be considered new construction. Such changes can trigger a reassessment of the property, which would reflect the increased value of the building after the improvements are made.
12. Does modifying my kitchen by adding built-ins or changing the layout count as new construction for tax purposes?
If the modifications to your kitchen are extensive, such as adding built-in furniture, changing the floor plan, or installing new plumbing and electrical systems, this may qualify as new construction. However, minor cosmetic changes, like new countertops or fixtures, generally would not trigger a reassessment.
