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What taxes apply to my rental property?

The more your money and assets can work for you, the more opportunities you will have to increase your potential. Owning a rental property can be a great way to earn extra income without an extensive list of obligations.

While rental property can be a source of passive income, there are still duties that come with owning rental property. One of the most important responsibilities you will have is taxes.

Here’s what you should know about the taxes that apply to your California rental property.

Based on the assessed value

The amount you will pay in property taxes will depend on the value of your property. Keep in mind that part of your property value may be based on what properties are around yours and how well they are maintained.

Each year, someone from the assessor’s office will assess your property every year to determine whether your property value changed. While there is a rule that the assessed value cannot increase more than two percent each year, you can typically expect that the value will go up the full two percent.

If you disagree with the assessment, there is an appeals process. Pay careful attention to your county’s fees and filing deadlines to make sure your appeal is not thrown out on a technicality.

Increasing the value (and your taxes)

Part of owning property is maintaining it and adding to its value. Depending on your relationship and how long they plan to live there, your tenants may also be interested in making improvements to your rental property.

Improvements, such as adding a bedroom or changing the landscaping, can help you increase your property value. As you think about whether you want to make improvements, keep in mind that the city will assess any improvements when they decide your property value at the beginning of the year.

Special taxes

In addition to California’s base property tax rate, which is based on the assessed value of the property, your city or county may impose additional taxes. Special taxes may be temporary to cover a bond the community voted on, or they may be more permanent.

Before getting started owning a rental property, you should talk to your local tax office about what taxes will apply to your property. You should also look at the tax records for any property you are interested in to see how the value has changed over the years.

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Dapeer Rosenblit and Litvak LLP

11500 W. Olympic Blvd.
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Los Angeles, CA 90064

Phone: 310-818-7975
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Dapeer Rosenblit Litvak LLP (DRL) in West Los Angeles represents municipal and public agencies, business and corporate entities as well as private individuals throughout California and nationally.