California SB 296: What the New Disabled Veteran Property Tax Exemption Means for Your Mortgage

Governor Gavin Newsom signed California Senate Bill 296 (Archuleta) into law on September 28, 2026 — the same day he signed a package of bipartisan veterans legislation (gov.ca.gov, September 28, 2026).

SB 296 represents the most significant expansion of California's disabled veterans' property tax exemption in decades. For veterans with a 100% service-connected disability rating, it eliminates property taxes on their principal residence entirely.

For San Diego's large military community, the implications extend beyond the tax bill itself. Property taxes are a component of every VA loan's monthly payment calculation. A significant property tax reduction changes what a veteran can qualify for, how much house their VA benefit supports, and — for veterans who are also exempt from the VA funding fee — compounds into a substantial cumulative benefit.

This post explains what SB 296 does, who qualifies, and how it connects to VA loan qualifying in California.

What SB 296 Does

Under California's prior law, disabled veterans received a property tax exemption of $100,000 of assessed value (the basic exemption) or $150,000 for low-income qualifying veterans. On a San Diego home assessed at $800,000, the prior exemption saved approximately $1,000 to $1,500 per year in property taxes — meaningful, but modest relative to San Diego's tax bills.

SB 296 replaces the existing exemption with a substantially larger one:

For veterans with a 100% service-connected disability rating (or who are blind in both eyes, or have lost the use of two or more limbs due to military service): A 100% property tax exemption on their principal residence.

For qualifying disabled veterans below the 100% threshold: An exemption on 50% of the first $1,000,000 of the home's taxable value.

The exemption applies to property tax lien dates on or after January 1, 2027 through January 1, 2032 — a five-year window.

Unmarried surviving spouses of qualifying veterans are also eligible under SB 296, consistent with California's existing exemption structure.

Important: SB 296 replaces the existing disabled veterans' exemption — it is not additive. A veteran claiming the SB 296 exemption cannot simultaneously claim other property tax exemptions such as the homeowners' exemption.

Who Qualifies

To qualify for the full 100% exemption under SB 296:

• The veteran must have a 100% service-connected disability rating from the U.S. Department of Veterans Affairs, or be blind in both eyes, or have lost the use of two or more limbs as a result of injury or disease incurred in military service.
• The property must be the veteran's principal place of residence.
• The property must be owned by the veteran, the veteran's spouse, or both jointly.
• Eligible documentation must be submitted to the county assessor — the exemption is not automatic.
• Unmarried surviving spouses of qualifying veterans may also claim the exemption.

For veterans with a qualifying disability below 100%, the 50% exemption on the first $1,000,000 of taxable value applies.

What This Means in Real Numbers for San Diego

San Diego County's effective property tax rate runs approximately 1.1% to 1.25% of assessed value annually, depending on the specific property and whether Mello-Roos or special assessments apply.

For a 100% disabled veteran owning a San Diego home assessed at $700,000:

For a 100% disabled veteran owning a home assessed at $1,200,000:

These are illustrative figures based on assessed value and effective tax rate. Actual savings depend on the specific property's assessed value under Proposition 13, and any Mello-Roos or special assessments (which are separate from the general property tax and may not be affected by this exemption).

The Mortgage Connection — How SB 296 Affects VA Loan Qualifying

Property taxes are one component of PITIA — principal, interest, taxes, insurance, and association fees — the total monthly housing expense used in VA loan underwriting. For a full overview of the program, see our complete 2026 guide to VA loans in San Diego.

VA loans use two qualifying tests:

Debt-to-income ratio: monthly PITIA plus all other monthly debt obligations, divided by gross monthly income. The VA's general guideline is 41% DTI, though exceptions exist with sufficient compensating factors.

Residual income: after all monthly obligations are paid, the veteran must have a minimum amount of income remaining for living expenses. The VA's residual income table for the Western United States requires $1,117/month for a family of four (VA Lenders Handbook, Chapter 4).

When property taxes are eliminated, PITIA falls. Lower PITIA means more room under the DTI threshold and more residual income.

Example — 100% disabled San Diego veteran, $700,000 home purchase:

At $4,346/month PITIA, the veteran needs approximately $10,600/month in gross income to stay at 41% DTI. At $4,896/month PITIA, the same veteran needs approximately $11,940/month.

The SB 296 exemption effectively lowers the income threshold to qualify for the same home by approximately $1,340/month — or allows the veteran to qualify for a more expensive home on the same income.

Stacking the Benefits — 100% Disabled Veterans

California's 100% disabled veterans have access to a compounding set of benefits when purchasing a home with a VA loan:

VA funding fee exemption: Veterans with a service-connected disability rating of 10% or higher are exempt from the VA funding fee. On a $700,000 VA purchase loan, this saves $15,050 (2.15% first use). Source: VA.gov / 38 CFR Part 36.

No down payment: Full-entitlement VA borrowers purchase with zero down — no county loan limit in 2026.

No PMI: VA loans never require private mortgage insurance, regardless of down payment or loan amount.

SB 296 property tax exemption: Elimination of annual property taxes on the principal residence — $5,000 to $12,000+ in annual savings depending on assessed value — effective for lien dates on or after January 1, 2027.

Combined, a 100% disabled veteran purchasing a $700,000 San Diego home in 2027 with a VA loan and the SB 296 exemption in effect would:

• Pay zero down payment
• Pay zero VA funding fee (saving $15,050)
• Pay zero PMI
• Pay zero property taxes (saving $550+/month)

The effective monthly housing cost on the same home would be approximately $750 to $1,000/month lower than a non-veteran buyer financing conventionally with 20% down.

Surviving Spouses

Unmarried surviving spouses of qualifying disabled veterans are eligible for the SB 296 exemption — the same as they are eligible for VA loans without a funding fee and without entitlement limitations in most qualifying scenarios.

For a surviving spouse who inherited a home purchased with a VA loan, or who is purchasing a home using the surviving spouse's VA benefit, SB 296 provides the same property tax relief as it would for the veteran.

How to Apply — What San Diego Veterans Do Next

SB 296 is now law. Here is what qualifying veterans should do:

Confirm your VA disability rating. A 100% rating qualifies for the full exemption. Ratings below 100% qualify for the 50% exemption on the first $1,000,000 of taxable value.

Apply to the San Diego County Assessor. The exemption is not automatic — you must apply with documentation of your VA disability rating and proof of ownership and occupancy. Monitor sdttc.com (San Diego County Treasurer-Tax Collector) and calvet.ca.gov for application instructions for the 2027 lien date.

Note on Mello-Roos: Special assessments and Mello-Roos taxes are separate from the general property tax levy and may not be affected by this exemption. Confirm the scope of the exemption with the San Diego County Assessor for your specific property.

If you are considering a VA loan purchase in 2027, account for the property tax elimination when calculating your budget and qualifying income. A mortgage broker familiar with VA loans can run your scenario with the SB 296 exemption applied to confirm your qualifying position.

If you already have a VA loan, the SB 296 exemption will reduce your monthly escrow payment going forward — contact your servicer after the exemption is applied by the assessor to request an escrow re-analysis.

Cascada Mortgage Advisors, Inc. (NMLS #2470941, CA DRE #02206556) serves San Diego's military and veteran community with VA purchase loans, VA IRRRL streamline refinances, and VA cash-out refinances through 100+ wholesale lenders — not as a direct lender. Broker Omar Michel (NMLS #398944, CA DRE #02131389) provides bilingual English and Spanish VA loan service throughout San Diego County. Contact us to run your scenario.

This content is for informational purposes only and does not constitute tax or legal advice. Consult a tax advisor or the San Diego County Assessor's office for guidance on your specific situation.