Rebuild vs Renovation (2015, assessor, new house)

[dorkaholic]

Question...

I hear a lot of advice from RE agents, contractors, accountants etc. about how you can save a lot of money by renovating rather than rebuilding. I'm assuming that this pertains to people who bought a LOOONG time ago and have very low property tax rates which can only increase by 2% / year according to tax laws.

Do you truly save money on property tax by renovating a home that was recently bought? The property tax is already so high. The plan is to add an additional 1000 sq ft into the backyard which I am assuming will be assessed at the ongoing market rate so I'm not sure if I'll be saving money on property tax by trying to renovate.

Recent home appraisal:
Land value 800,000
Home value 200,000

I would prefer to build a new 2 story home because it preserves the yard. I just don't see that I'll be saving so much on property tax because it's already appraised so high.

Cost difference between build a new 2 story structure and adding on to a 1 story structure is negligible to me. I'm just thinking about long term property tax differences.

Thanks...

[CA4Now]

Any MAJOR remodel/renovation will increase the value of your home, and you will be assessed accordingly. Once your remodel is complete and the inspection report clears, you'll receive a supplemental assessment notice. Obviously, rebuilding will result in a higher property assessment than renovating.

http://assessor.lacounty.gov/wp-cont...5/02/E-36P.pdf

[Taiko]

Yet for some reason when a rebuild happens on a lot the new house is built around one existing beam from the old house. The first time that I saw it 20 years ago my customer told me it was for tax purposes. To this day with around 10 % of the houses on my route always being torn down in favor of two story near McMansions I always see the bulldozers avoid that single 2 by 4 as a new home is built

[adr3naline]

Here in California I understand you must retain 3 walls so that you qualify for a "remodel" rather than a total rebuild. It's a tax thing. For a remodel the value of the house increases only by the value of the remodel. In a rebuild the value of the house assumes the marketable value after time of completion. The resulting difference between these two values can be substantial, thus a large tax implication.

So if you follow this rule (and you should read up on it of course) and "remodel" the home by demolitioning some stuff and add square footage up top as a two story, you theoretically would save on property tax.

Also, a major remodel may qualify your property for a new year built on file, or what would be known as the Effective Year Built. That would have positive resale implications.

[Mr. Zero]

I've wondered if the prop 13 adjustments are based on just the improvements, or are the current market values for the land and existing structures included.

Say the original assessment is $500k land and $500k building for a $1MM total value. When you renovate/rebuild 10 years later and the land is now worth $1MM and the new house is worth $750k, is your new prop 13 value calculated using the original land value ($500k) or the current market value of the land ($1MM)?

[CA4Now]

Originally Posted by Mr. Zero

I've wondered if the prop 13 adjustments are based on just the improvements, or are the current market values for the land and existing structures included.

Most likely the improvements, since that was the whole premise of Prop 13. Otherwise, few people would undergo major remodels.

[Ultrarunner]

The Assessor has always come out and added the cost of improvements like adding square footage, swimming pool, etc.

I have never been reassessed for a roof replacement with a permit.