Following the real estate crash starting in late 2006, real estate prices in California fell up to 50% and more. In many cases, those who held onto their homes saw a substantial drop in their property taxes as County Assessors adjusted their values. Now that the economy is recovering and prices are rising, property tax bills may rise with them. The following will help you understand how our property taxes are calculated and what you can expect.
Under our property tax system, every County has a Tax Assessor whose job includes valuing every Parcel of real estate in the County and then assessing a property tax based upon it’s value. This system, while seemingly fair, can lead to very unfair results for many – especially retired people on fixed incomes – who found themselves forced from their homes by rising property tax bills.
In 1978, California passed Proposition 13 which set a base value for all properties according to what they were assessed for in 1975-76. Property tax would then be at 1% of this valuation plus any additional assessments approved by the voters. On average, property tax rates have been at approximately 1.15%. Thereafter, the property tax could be increased if values go up but would be limited to no more than 2% increase per year. Each time a property ownership was sold, the sale value would establish a new base price.
However, Legislators quickly saw a possible flaw in Prop 13… what would happen if property values fell? As a result, later in 1978, the voters passed Proposition 8 which required the Assessor to base the property tax on either the property’s adjusted base year value (Prop 13 value) or it current market value (Prop 8 value). As a result of these two related laws, the tax assessor keeps track of the two valuations for each property. If the Prop 8 value fell below the adjusted Prop 13 value, property taxes were supposed to drop. Then, if Prop 8 value (current market value) exceeded the adjusted Prop 13 value, the property taxes would rise up again but to no higher than the adjusted Prop 13 value which still capped taxes and protected owners against climbing prices.
And that is how it is supposed to work and generally did. With property values falling sharply since 2007, home owners experienced tax reductions as the Prop 8 value fell below Prop …read more