Understanding Property Taxes Before Purchasing Your Lake Home

Understanding Property Taxes Before Purchasing Your Lake Home

Whether you are interested in buying a rental home, a vacation home, or a primary home for your family, there are some key points to know about property taxes in the Lake Tahoe area before you purchase that beautiful lakeside property.
Lake Tahoe is renowned for its breathtaking natural beauty, world-famous ski resorts, abundant outdoor recreational opportunities, and luxurious lakefront homes, making it a popular place to live and visit. But did you know that the Lake Tahoe area sits within both California and Nevada state boundaries? As such, tax requirements are different depending on which side of the state line you live and work.
Lake Tahoe comprises Washoe and Douglas Counties in Nevada and El Dorado and Placer Counties in California. That is vital information for homebuyers because the state and county your property is in will directly impact your property taxes in Lake Tahoe. This article will cover the essential points you need to know about property taxes in both California and Nevada, including rates and assessment.
Let's first discuss how your property taxes will be affected if your Lake Tahoe lakefront home is in the state of California.

Property taxes in California

California has one of the highest tax rates in the U.S. and has notoriously higher property taxes than neighboring Nevada. That applies to Tahoe lakeside neighborhoods in El Dorado County and Placer County, including:
  • Lake Forest
  • Tahoe City
  • Tahoma
  • Tahoe Pines

How property tax is assessed in California

In California, property tax rates are determined by the county your property is located in and are assessed upon property transfer from the seller to the buyer at about 1.25% of the sales price for the first year. This number represents 1% of the real estate purchase price and .25% for taxpayer-approved measures and local programs.

California Proposition 13

It is also critical for home buyers to know that California Proposition 13 allows for the underlying property value of your home to be increased by a maximum of 2% each year. That means that after the first year, California property owners can expect the base value of their property to rise along with the total property tax bill, but this increase is capped. This increase is critical for California home buyers to anticipate and plan for if they don't want the payment to be a surprise.

Supplemental tax bill & tax credit

In California, if the property you purchase currently has a lower tax base than the purchase price, you will get a supplemental tax bill approximately 90 days after closing escrow. Conversely, if the property you buy has a higher tax base than the purchase price, you will receive a tax notice that will give you a tax credit credited towards the next payment. Now, let's look at how your property taxes will be affected if your Lake Tahoe home falls within Nevada state boundaries.

Property taxes in Nevada

Property taxes in Lake Tahoe's Nevada neighborhoods are significantly lower than in its California neighborhoods. Furthermore, the state of Nevada has some of the lowest property taxes in the United States, with an effective tax rate of 0.58%. Luxury lakeside neighborhoods to consider in the Nevada portion of Tahoe include:
  • Incline Village
  • Glenbrook
  • Skyland
  • Zephyr Cove

How property tax is assessed in Nevada

In Nevada, property taxes vary from county to county and are reassessed every five years rather than upon property transfer, as it is in California.
Since property taxes vary from county to county, the county your property is located in will directly impact the amount of property taxes you will pay. In Nevada, understanding the tax rates of each county will help you choose the best home for your finances. For example, neighborhoods in Washoe County, like Reno and Incline Village, are known for higher tax rates compared to tax rates in Douglas County neighborhoods, like East Shore and Carson Valley.

Property taxes for primary and secondary homes

According to the Douglas County Tax Assessor's Office, property taxes in Nevada are prohibited from exceeding the amount established by tax relief provision AB489. This provision benefits taxpayers by offering a partial abatement that results in a "tax cap." Property taxes on primary residences and rental homes that charge at or below the Department of Housing and Urban Development (HUD) fair market rents can only be raised up to 3% yearly. However, the limit for secondary homes is between twice the yearly increase in the Consumer Price Index and 8% at the highest, depending on the growth rate in the particular county.
If you are moving from out of state, it is also helpful to consider that Nevada does not have a state income tax; this may play a role in the amount of property tax you are willing to pay.

Final considerations

Whether in the state of California or Nevada, Lake Tahoe is home to many neighborhoods that offer luxury lakesides homes, access to year-round outdoor recreation, and endless natural beauty. With so many desirable communities to choose from (and other things to consider), it can be challenging to know what lakeside neighborhood you want to purchase a home in.
Understanding the difference between property tax rates in California and Nevada can help make the decision process more manageable. The stark contrast between exceedingly high property tax rates in California and notably low tax rates with no state income tax just next door in Nevada is undoubtedly a helpful point to consider and take advantage of. However, it is also vital to consider the rate at which underlying property values in California are expected to increase in relation to property values in Nevada. Of course, it is essential to consult your preferred tax professional before making any tax-related decisions.
If you are interested in Lake Tahoe lakefront real estate for sale in Nevada or California, reach out to knowledgeable and trusted Tahoe realtor Cole Mizak. Cole is well-equipped to help you find the perfect luxury lake house and guide you through every step of the home purchasing process.

*Header photo courtesy of Shutterstock

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