Taxes after you buy

This chapter is for anyone wondering what taxes come with owning a home in San Francisco, from property tax bills to income tax. Buying here sets a property tax base you'll keep for as long as you own the home, and the deductions are smaller than most buyers expect. We'll walk through the numbers for your first year, the years after, and the day you sell.

How SF property tax works under Prop 13

Prop 13 is the California law that limits property tax. Your assessed value (the value the county taxes you on) resets to the purchase price when you buy. After that it rises with inflation, capped at 2% a year, until you sell or do major new construction. Your neighbor who bought in 1998 may pay a tenth of what you pay. That's how the system is designed.

	Value
SF secured tax rate, FY2026-27	1.18162182% (1% Prop 13 base plus voter-approved bonds)
Homeowners' exemption	$7,000 off assessed value, about $83 a year
Fixed parcel taxes (FY2025-26 amounts)	School Parcel Tax $334.38, SFUSD Teacher Support $319.34, SFUSD Facilities $43 (SFH), City College $99, Bay Restoration $12, about $800+ a year total
Installments	1st delinquent after Dec 10, 2nd after Apr 10
Annual increase cap	2% of base-year value

New-construction condos in some districts also carry Mello-Roos / Community Facilities District (CFD) special taxes, an extra tax used to pay for new neighborhood infrastructure (more below). Get the actual tax bill for the specific unit, not a percentage estimate.

The supplemental tax bill

When a home changes hands, the Assessor issues a supplemental assessment for the difference between the old assessed value and your purchase price. It's prorated from the first day of the month after closing through June 30, the end of the fiscal year.

• It arrives months after closing, often 3–9 months.
• It's billed to you directly, separate from the regular annual bill.
• Lender impound accounts usually don't cover it. (An impound account is where your lender collects tax and insurance money each month and pays the bills for you.) Pay it yourself and keep the cash set aside.
• The homeowners' exemption can apply to it.

Say you buy a $3M house in mid-November 2026 from a long-time owner whose assessed value is $500k.

Increase in assessed value	$3,000,000 − $500,000 = $2,500,000
Full-year tax on the increase	$2,500,000 × 1.18162% ≈ $29,540
Proration (Dec 1 – Jun 30 = 7 months)	× 0.58
Supplemental bill	≈ $17,100

Close between January and May and you'll usually get two supplemental bills: one for the rest of the current fiscal year, and one for the entire next fiscal year, because that year's regular bill was set at the January 1 lien date on the seller's old value. A March closing on that same $3M house could produce roughly $7k plus $29.5k, all within about a year.

Mello-Roos and special districts

Most SF homes don't carry Mello-Roos. A few newer master-planned areas do:

• Transbay CFD 2014-1 (Salesforce Transit Center area towers)
• Mission Bay (OCII districts, run by the city's Office of Community Investment and Infrastructure)
• Hunters Point Shipyard / Candlestick
• Treasure Island CFD 2016-1
• Mission Rock STD 2020-1

Transbay's base special taxes were about $6.20–$9.69 per sq ft of unit area in FY2020-21, depending on building height. On a 1,200 sq ft unit that's thousands a year on top of the 1.18% rate. These taxes typically go up on a fixed schedule. Current-year rates are in the SF Controller's CFD reports, and the condo's actual tax bill is the final word.

File the homeowners' exemption

It's only about $83 a year, but it's free money and it can apply to your supplemental bill. The Assessor usually mails the claim form after a sale, and you can also file directly. File by February 15 for the full exemption for that year.

Federal income tax under the 2025 tax law

The 2025 federal tax law, the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, changed the rules for homeowners. Here's what applies to a typical SF buyer in 2026. A few terms first: "acquisition debt" is the mortgage you took to buy or improve the home. SALT is the deduction for state and local taxes. MAGI (modified adjusted gross income) is your income figure for these limits.

Item	2026 rule	What it means at SF prices
Mortgage interest	Deductible on the first $750,000 of acquisition debt. Now permanent and not indexed. ($1M grandfathered for loans before Dec 15, 2017.)	On a $2.4M loan, only about 31% of your interest is deductible.
SALT (state income plus property tax)	Cap $40,400, reduced by 30% of MAGI over $505,000, with a floor of $10,000. Rises 1% a year through 2029, then reverts to $10k in 2030.	At MAGI of about $606k+, you're back to $10k. Your $36k SF property tax bill is mostly non-deductible federally.
Mortgage insurance (PMI)	Private mortgage insurance is deductible again from 2026 as mortgage interest, with an income phaseout	Phased out at high incomes, so it rarely helps buyers at these prices.
Itemized deduction haircut	In the 37% bracket, the value of itemized deductions is effectively capped at 35%	Shaves a little more off the benefit.
Home equity / HELOC interest	Deductible only if used to buy, build, or substantially improve the home, and within the $750k total	A home equity line of credit (HELOC) used for a renovation can qualify. One used to buy a car can't.

Take a married couple filing jointly, with MAGI of $900k, a $2.4M loan at 7.64% (the October 2026 jumbo average used in the budget chapter), and $36k of property tax:

• First-year interest ≈ $182.6k, of which deductible ≈ $750k ÷ $2.4M × $182.6k ≈ $57.1k
• SALT: $40,400 − 30% × ($900k − $505k) is below the floor, so $10,000
• Itemized ≈ $67.1k plus charity, vs. the 2026 standard deduction of $32,200
• Extra federal tax savings ≈ ($67.1k − $32.2k) × 35% ≈ $12.2k a year

That's real money, but it's about 7% of the year's interest. Don't decide how much house to buy based on the deduction.

California has its own rules

California never adopted the 2017 federal changes for housing:

• Mortgage interest: deductible on up to $1M of acquisition debt (plus up to $100k of home equity debt) on the CA return.
• Property tax: fully deductible on the CA return. There's no SALT cap, though state income tax itself isn't deductible on the state return.
• California trims itemized deductions at high incomes, so the real benefit is smaller than the headline. Have your CPA run both returns.

Prop 19: moving a tax base and inheriting a home

Prop 19 (effective 2021) did two things:

1. Portability for owners 55+, severely disabled owners, and disaster victims. They can move their Prop 13 base to a replacement home anywhere in California, up to three times, with an adjustment if the new home costs more. For example, an owner with a 1990s SF tax base can take it to a smaller place.
2. Parent-to-child transfers are sharply limited. Only a family home that the child makes their primary residence (within one year) keeps the parent's base, and only up to the factored base value plus about $1,044,586 (the figure for Feb 2025 to Feb 2027). Rentals and second homes inherited from parents get reassessed to market.

If you're inheriting or buying together with your parents, get advice before title moves.

Selling later: the tax-free amount and your basis

When you sell a primary residence you've owned and lived in for 2 of the last 5 years, you can exclude $250,000 of gain (single) or $500,000 (married filing jointly) under IRS §121. That limit has been unchanged since 1997. A bill to eliminate the tax had not passed as of mid-2026.

In SF, $500k doesn't go far. A $3M house that's worth $5M in ten years has a $2M gain. After the exclusion, $1.5M is taxable at up to 20% + 3.8% NIIT + 13.3% California ≈ 37.1%, or about $556k before any basis adjustments. (NIIT is the net investment income tax, an extra federal tax at higher incomes.)

Your basis is your best protection. Basis = purchase price + certain closing costs + capital improvements − any depreciation. The higher your basis, the smaller your taxable gain. Improvements add value, extend the home's life, or adapt it to a new use: a kitchen remodel, seismic retrofit, new roof, foundation work, ADU, solar, a panel upgrade. Repairs (fixing a leak, repainting a room) don't count.

• Final closing statement (settlement statement) from escrow
• Every contractor invoice and proof of payment for capital improvements
• Permit numbers and final sign-offs, which double as proof the work happened
• Architect, engineer, and permit fees for improvement projects
• Assessments for permanent improvements (e.g. sidewalk or sewer lateral replacement)
• Records of any casualty losses and insurance reimbursements
• Records of any period the home was rented, and depreciation claimed
• Store it all in a cloud folder; you may need it 20+ years from now

Renting out part of your home

Lots of SF buyers plan to rent out an in-law unit, an ADU (accessory dwelling unit), or a room. The tax and legal rules:

• Rental income goes on Schedule E of your tax return. You can deduct the rental share of mortgage interest, property tax, insurance, and repairs, and you must depreciate the rental portion of the building (27.5 years for residential).
• §121 doesn't shelter depreciation. When you sell, depreciation you took (or could have taken) is taxed at up to 25% federal, plus California tax.
• A separate dwelling unit, such as an ADU or a legal in-law with its own kitchen and entrance, usually requires you to split the gain between your residence and the rental part. The rental part generally doesn't get the exclusion unless you also lived in it for 2 of the 5 years.
• Local rules can matter more than the tax rules. A long-term tenant in a unit in an older building can come with SF rent control and just-cause eviction protections. Unpermitted units can carry tenant protections and required legalization. Short-term rentals require registration with SF's Office of Short-Term Rentals, are limited to your primary residence, and are capped at 90 unhosted nights a year. See SF property types decoded.

Your first-year tax calendar

When	What
Closing	Save the settlement statement. Note prorated property tax paid through escrow.
Within 1–2 months	File the homeowners' exemption if the Assessor's form arrives, and set aside cash for the supplemental bill.
3–9 months after closing	Supplemental bill(s) arrive. Check due dates on the bill itself.
October	Annual secured bill mailed. If you have no impound account, the 1st installment is delinquent after Dec 10.
January	Form 1098 from your lender (interest paid, and points if any).
Feb 15	Deadline for the full-year homeowners' exemption.
April 10	2nd property tax installment delinquent after this date.
April 15	Federal and CA returns. Itemize only if it beats the standard deduction.

Sources & verification›

• Secured property taxes — SF Treasurer & Tax Collector, FY2026-27
• Parcel tax exemptions and special assessments — SF Treasurer & Tax Collector
• Learn about supplemental assessments — City and County of San Francisco
• File for the homeowners' exemption — City and County of San Francisco
• New homeowner checklist — City and County of San Francisco
• Supplemental taxes — Legacy SF Homes
• Transbay CFD administration report FY2020-21 — SF Controller
• Mello-Roos in San Francisco — Colleen Cotter
• IRS releases tax inflation adjustments for tax year 2026 (Rev. Proc. 2025-32) — IRS, Oct 2025
• SALT deduction cap 2026 — Tax47, 2026
• SALT deduction cap increase under OBBBA — HCVT
• Preparing for 2026: how OBBBA reshapes itemized deductions — PKF O'Connor Davies
• The $750,000 mortgage interest cap made permanent — 24/7 Wall St, Oct 2 2026
• ISOs, the AMT and new rules in the OBBBA — Crestwood Advisors
• Proposition 19 — California State Board of Equalization
• No capital gains tax on home sales: what to know — Kiplinger
• Publication 523, Selling Your Home — IRS