Does building an ADU in Los Angeles change your property tax?

2 Replies

I recently bought a house in Los Angeles that has a garage qualifying for an ADU conversion. My architect says I have the option of making the ADU two stories, and I'm weighing the pros and cons of doing a small, cheap conversion and a larger, more complex build out with potentially better long term returns. One factor that I don't know enough about is the potential change to my property tax- I'm assuming that the property gets reassessed, but how does the new value get calculated? My back-of-napkin math so far seems to suggest that going for the bigger unit won't necessarily bring in a lot of extra rent, but could add a lot of value when I sell it, so I'd be absorbing a lot of extra taxes for the time I own the property.

Any thoughts or insights would be appreciated,

Michael

I'm thinking of doing the same thing on my property after recently seeing a 2-story ADU conversion on a neighbor's house. He suggested to call the Assessor's office to get a real read on what the lift on property taxes will be like.

Yes, building an ADU changes your property taxes.

The state will do what’s called a blended assessment.

What is a Blended Assessment?

A blended assessment means the base value of the existing house will stay the same. Your accessory dwelling unit’s additional value at current market rate will be added to the existing home’s value. Once everything is added together there will be a 1% tax rate added to that amount.

Let’s look at an example.

A home purchased in 1990 for $100,000 has a base value of $156,000 (from Prop 13’s 2% increase). Let’s say you then build an accessory dwelling unit valued at $75,000.

You would add $156,000+$75,000=$231,000

So $231,000 is the new assessed value of the home.

Does Prop 13 Apply to ADUs?

Yes. The assessed value set when the ADU is added to the property will be taxed at 1% and up to 2% annually based on CPI.

I have a lot more info on ADUs on my site :) Hope that's helpful.