The state of California has been close bedfellows with high taxes for decades, driven in part by the state’s booming economy, numerous property investors, and growing real estate market. But the recent flow of homeowners away from California to states with more amenable tax rates has shaken up these time-tested trends.

People interested in real estate investment—in Carmel real estate in particular—may find it difficult to predict what their property taxes will look like by the year’s end. That’s why we’ve put together this article to help explain what’s on the horizon. Without further ado, let’s get started!

California property taxes have been capped at 1% of a home’s market value since 1978 when voters approved Proposition 13, a landmark law that also limited the amount that a property’s assessed value can increase every year by 2%. Since a property’s assessed value is based on the original purchase price of a home, long-time homeowners often have a lower property tax than one would expect given the home’s market value.

When we consider Carmel property taxes as a whole, however, the base tax rate climbs up to around 1.0369%, depending on the number of tax rates applicable to your home. This is due to other taxes outlined in the Carmel Unified 2016 bill, Monterey Pen CCD 16 Ref and 20 A bills, and other voter-approved debt rates. A good guideline to use when determining the amount of your property tax in California is to multiply the home’s sale price by 1.25% to account for any additional local taxes.

When we average out the effective property tax in California as a whole, the state actually falls behind the national average, at 0.73% compared to 1.11% respectively. The effective tax rate for Carmel homes for sale in Monterey County currently sits at 0.71%, meaning that homeowners in Carmel enjoy relatively low property taxes compared to those living in other areas of the state.

It’s important to note that there are no current proposals in place to directly increase the property tax in Carmel in 2023. Proposition 13 remains a treasured piece of legislation across the state, and there are no signs that lawmakers are planning to amend it any time soon. But this November, there are several propositions on the ballot that are set to reshuffle the way that property taxes look for homeowners in the Golden State in 2023.

In November 2020 CA voters passed Proposition 19 which allows anyone over 55 years of age, severely disabled persons and victims of natural disaster in our state to transfer their tax base of a primary residence from one county to another within the state.  Prior to the implementation of Prop 19 there were only 11 counties which accepted such transfers.  This was a huge win for homeowners who could not afford to move to be closer to family, downsize or otherwise sell their property because of tax concerns.  To find out if you qualify and how to qualify, contact your local assessor’s office.

Earlier in 2022, the California legislature enacted SB 951, which will boost the top marginal income tax rate by 1.1% by 2024. While this tax doesn’t directly impact property taxes on Carmel, CA, real estate, it could affect earners in the higher tax brackets, especially since the administration can choose to raise that rate to 1.5% over time.

In the past, the wage limit for this tax was limited to the first $145,600 in income for California residents. SB 951, however, removed this wage limit. That means that the 1.1% payroll tax will be deducted from the entirety of your employment income.

Another caveat of this bill is that lawmakers have the option to increase this rate every year at their discretion, up to a maximum rate of 1.5%. All told, California’s top marginal rate for wage income will sit at 14.4% once SB 951 goes into effect.

As of late October 2022, homeowners in Carmel, CA, aren’t expected to have an increase in their property taxes in 2023. That’s an encouraging fact. Property values continue to climb across the state, demand from foreign and domestic real estate investors remains strong, and the state’s economy looks stronger than ever. After all, the 2022 budget cycle indicates that the state’s surplus has climbed north of $97.5 billion.

Still, residents should be prepared to face rising income taxes given recent legislation. When we compare rates to nearby states, we find that Arizona currently offers a 2.5% flat tax on income, Washington collects capital gains tax now but not any taxes on earned income, and Nevada lacks a tax on individual income whole cloth.

Nevertheless, the market for Carmel real estate and Carmel house rentals remains extremely competitive. We are confident that this trend will continue in the future as California emerges as one of the strongest economies in the U.S. and worldwide.

For more information about Carmel real estate, or for expert insight into the housing scene throughout the Monterey Peninsula, contact the top Carmel real estate agents at Tim Allen Properties today! Tim has been regarded as a leading real estate agent in the region, with more than 38 years of experience backing him.  Tim is ready to help you work toward your goals. Reach out today to start browsing exclusive listings of beautiful Carmel, California homes for sale!