California Property Tax on Rental Homes: Prop 13, Reassessment and Exemptions
Under Proposition 13 (California Constitution, article XIII A), the general property tax on a California home is capped at 1% of its assessed value, plus taxes for voter-approved debt, and the base year value can rise by no more than 2% a year until the home changes ownership or new construction is completed. Renting a home out does not, by itself, trigger a reassessment. What renting does change is the homeowners' exemption, which ends once the home is no longer your principal residence.
The short version
- The levy: the 1% general levy plus voter-approved debt (art. XIII A, § 1).
- The value: your base year value is generally the appraised value when you bought, built or otherwise acquired the property, adjusted each year by an inflation factor of no more than 2% (R&TC § 51). For the 2026-27 roll, the factor is 1.02.
- Reassessment follows a change in ownership or completed new construction. An ordinary residential lease is not a change in ownership.
- Supplemental bills follow a reassessment. They are separate from the annual bill and, in San Diego County, are not sent to your lender.
- The homeowners' exemption ($7,000 off assessed value in San Diego County) requires that the home was your principal residence on January 1. Ending it when you no longer qualify is your job.
- Annual bills come in two installments, due November 1 and February 1, delinquent after December 10 and April 10.
How Prop 13 sets the tax on a rental
Three rules do most of the work.
The 1% cap. Article XIII A, § 1(a) says the maximum ad valorem tax on real property "shall not exceed One percent (1%) of the full cash value." Section 1(b) carves out taxes that pay voter-approved debt, so a typical bill is the 1% general levy plus those debt taxes.
Base year value. Section 2(a) defines full cash value as the 1975-76 assessed value or, after that, "the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred."
The annual inflation factor. Under R&TC § 51(a)(1), the base year value is adjusted each year by the change in the California Consumer Price Index, and the increase "in no event" can exceed 2% of the prior year's value. The Board of Equalization (BOE) set the 2026-27 factor at 1.02 (Letter to Assessors No. 2026/002). Because the October 2025 index was never published during the federal shutdown, the BOE used August 2024 to August 2025 instead. In a few low-inflation years the factor has been under 2%, for example 1.04% for 2021-22.
Declines in value (Prop 8). If market value on January 1 is below the factored base year value, the assessor enrolls the lower market value. The BOE says it is reviewed yearly and can rise more than 2% on a later lien date, but not above the factored base year value. You can ask the assessor to review your value; check the San Diego County Assessor for deadlines.
What triggers reassessment, and what does not
| Event | Reassessed? | Rule |
|---|---|---|
| You sign an ordinary residential lease | No | Leases are a change in ownership only at 35 years or more, including renewal options (R&TC § 61(c)(1)) |
| You sell the rental, even with a tenant in place | Yes | Transfer of the lessor's interest subject to a lease with less than 35 years remaining (R&TC § 61(c)(1)) |
| You buy, inherit or are otherwise transferred the property | Generally yes, unless an exclusion applies | A transfer of a present interest substantially equal to the fee interest (R&TC § 60) |
| New construction is completed | The new construction is valued and added; the existing base stays | R&TC § 75.10; art. XIII A, § 2(a) |
| Ordinary repair or maintenance | No | Only new construction is reassessed |
| Interests in an LLC or partnership that owns the property change hands | Generally no, with exceptions for changes in control and certain transfers by original co-owners | R&TC § 64 |
For entity ownership, including the 90-day BOE-100-B filing, see holding a California rental in an LLC. Inherited homes follow Prop 19, covered in inheriting a rental property in California.
Supplemental assessments after a purchase or new construction
When a change in ownership occurs or new construction is completed, the assessor appraises it at full cash value as of that date, and that value becomes the new base year value (R&TC § 75.10). The difference shows up on supplemental bills:
- A change or completion from January 1 to May 31 produces two supplemental assessments, one for the current roll and one for the roll being prepared.
- A change or completion from June 1 to December 31 produces one (R&TC § 75.11).
In San Diego County, the bill covers the period from the day you closed escrow, or reported the new construction, through June 30. In the Treasurer-Tax Collector's words, supplemental bills "are separate and in addition to the annual tax bills. They are not sent to a lender for payment. The property owner is responsible for ensuring that the supplemental bills are paid on time." If the new value is lower, the county issues a negative supplemental bill with a refund. Read each supplemental bill for its due dates when it arrives.
The homeowners' exemption ends when you rent
The homeowners' exemption takes $7,000 off assessed value in San Diego County, which the county assessor says saves about $70 a year. It applies only if the home was your principal residence on the January 1 lien date. Two duties follow when you move out and rent:
- You end it. The San Diego County Assessor says it is the owner's responsibility "to terminate the exemption when they are no longer eligible."
- Timing. The BOE says December 10 is the last day to terminate the exemption without penalty.
A penalty can apply if you do not end the exemption in time; ask the assessor how it is figured. If you move back in later and claim it again, San Diego's rules are: a filing carries forward while you occupy the home, the deadline for the full exemption is February 15, filings from February 16 to December 10 receive 80%, and it cannot be granted for prior years.
San Diego County due dates and penalties
California law sets the installment dates for the secured (annual) bill:
| Installment | Due | Delinquent after | Penalty |
|---|---|---|---|
| First | November 1 (R&TC § 2605) | 5 p.m. or close of business, December 10 (R&TC § 2617) | 10% |
| Second | February 1 (R&TC § 2606) | 5 p.m. or close of business, April 10 (R&TC § 2618) | 10%, plus a $10 fee in San Diego County |
For 2026-27 bills, the statutory dates are November 1, 2026; December 10, 2026; February 1, 2027; and April 10, 2027. In San Diego County, a deadline that falls on a weekend or holiday moves to the close of the next business day. Taxes unpaid by June 30 go into default, then accrue interest at 1.5% a month (18% a year) plus a $33 redemption fee, according to the Treasurer-Tax Collector.
"Failure to receive a tax bill shall not relieve the lien of taxes, nor shall it prevent the imposition of penalties" (R&TC § 2610.5), with narrow exceptions for tax collector error. If you live out of the area, keep your mailing address current with the county.
What to do next
- End the homeowners' exemption with the assessor once you no longer qualify; the BOE says December 10 is the last day to end it without penalty.
- Put all four installment dates on your calendar, and set aside cash for any supplemental bill after a purchase or completed construction.
- Before a large project, ask the assessor whether it is new construction that will be added to your value.
- Build the tax into your numbers with the rental cash flow calculator.
Property taxes go on Schedule E as a rental expense; see Schedule E for rental property and California vs. federal tax rules. Coronado owners can also read taxes on a Coronado rental.
McKee Properties manages rentals from its Coronado office; contact us with questions about your property.
Frequently asked questions
Will renting out my home raise my property tax?
Not by itself. Reassessment follows a change in ownership or completed new construction, and an ordinary residential lease is not a change in ownership; only a lease of 35 years or more, including renewal options, counts. Your bill can still go up slightly because the homeowners' exemption ends when the home is no longer your principal residence on January 1.
Does my assessed value always go up 2% a year?
No. Two percent is the ceiling, and the factor has been lower in some years, such as 1.04% for 2021-22. For the 2026-27 roll it is 1.02. If market value drops below your factored base year value, the assessor enrolls the lower market value instead.
Why did I get a second tax bill after buying a rental?
That is likely a supplemental bill. When a property changes ownership, the assessor sets a new base year value as of that date and bills the difference for the rest of the fiscal year. A purchase from January 1 to May 31 produces two supplemental assessments, and one from June 1 to December 31 produces one. In San Diego County these bills are not sent to your lender.
Does remodeling a rental trigger a full reassessment?
No. Only completed new construction is reassessed, and only the new construction is valued and added to your existing base. Ordinary repair and maintenance is not reassessed. Ask the assessor before a large project whether the work counts as new construction.
This is general information, not tax or legal advice. Tax rules change and depend on your facts; talk to a CPA or enrolled agent before acting.
Sources
- California Constitution, article XIII A (opens in a new tab)
- R&TC § 51 (opens in a new tab)
- R&TC §§ 60, 61, 64, 75.10, 75.11, 2605, 2606, 2610.5, 2617 and 2618, California Legislative Information
- BOE Letter to Assessors No. 2026/002 (opens in a new tab)
- BOE, Decline in Value (opens in a new tab)
- BOE, Change in Ownership FAQ (opens in a new tab)
- BOE, Homeowners' Exemption (opens in a new tab)
- San Diego County Assessor, Homeowner's Exemption (opens in a new tab)
- San Diego County Treasurer-Tax Collector, Supplemental Property Taxes (opens in a new tab)
- San Diego County Treasurer-Tax Collector, Secured Property Taxes (opens in a new tab)
Verified October 19, 2026.
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