Today I wanted to discuss a hot topic in the world of financing: supplemental tax.

You can see what I call my ‘pizza chart’ that my clients see during their initial consultation in the video above. We typically estimate that about 1.25% of a home’s sale price will go toward the property tax. For a $400,000 house, for example, you’d be looking at $5,000 a year.

Now, the county operates on a fiscal year which begins July 1st and ends June 30th. Your property tax bill comes once a year sometime in October, and with it, you’ll find two coupons: a first and second installment. The first installment is due November 1st, delinquent by December 10th. It will cover you from July 31st all the way through December 31st. The second installment is due February 1st, delinquent by April 10th. It will cover you from January 1st all the way to June 30th.

I tell my clients they can use this chart and remember their property taxes with the anagram “No Darn Fooling Around” to keep track of the months they’re due.

So say you bought a house and closed in February. Your two installments will be $2,500. Let’s also say that when the sellers originally bought the house, their tax rate was just $2,000, which would be paid in two $1,000 installments. When you closed, the escrow company deducted the seller’s prorated share from their proceeds of the second installment, and they also had you pay your portion of the second installment. If you paid that installment back to the sellers but paid based on their tax rate of $1,000, you might think you scored a discount.

Unfortunately, that’s not the case.

Six to eight months after you close escrow, the county will send you what’s called the supplemental tax bill. You can see in the video above why we call this the ‘pizza crust.’ The purpose of the supplemental tax is to capture the difference between the seller’s tax rate and your tax rate. In our example, that’s about $1,500, so you’ll get a supplemental bill of about $1,500 six to eight months after we close. They’ll cut that into two coupons that you’ll have to pay.

I hope this clears up any confusion you’ve had about property and supplemental tax. If you have any questions I might be able to help with, don’t hesitate to give me a call or send me an email. I’d be happy to help!