Assessed value of your California real property holdings
If you’re like me, this time of year brings with it some trepidation as you await the arrival of the annual notice from the county tax assessor’s office informing you of the current assessed value of your California real property holdings. If so, you may be curious why the assessed value of your California real estate shown on this year’s notice may have increased by more than the 2% allowed annually under Proposition 13. It turns out that these larger increases are the result of a relatively unknown wrinkle in a law designed to provide taxpayers with a temporary tax break during periods of declining real estate values.
Proposition 13
After the adoption of Proposition 13 in June 1978, the California legislature drafted Proposition 8 for submission to the electorate in order to provide for the temporary reassessment of real property under Proposition 13 to reflect short-term losses in value. Proposition 8 was approved by the voters at the November 1978 general election, and has served since that time to allow such “decline in value” reassessments.
Financial crisis and Great Recession of 2008-2009
In the wake of the financial crisis and Great Recession of 2008-2009, real estate values plummeted in California. This market collapse resulted in massive numbers of Proposition 8 “decline in value” reassessments. In Santa Clara County alone, the Assessor’s Office in 2010 temporarily lowered the assessments of over 100,000 properties on its own initiative, in addition to those reductions made at the request of the owner. As a result, the assessed value of all property in Santa Clara County fell for first time since the Great Depression.
Assessed values of California property
When it comes to the assessed values of California property, however, what goes down must generally come back up. Once those conditions that resulted in the short-term reduction in the value of a property have passed, the provisions of Proposition 8 grant the county assessor the authority to restore the assessed value of California real estate to the lower of (1) its current market value or (2) its base year value, adjusted for the 2% annual increases allowed under Proposition 13. In those situations, the annual increase in assessed value may be substantially greater than 2%; for example, in 2014, over 70,000 Santa Clara County properties experienced double-digit increases in their assessed values.
Overall market conditions in California
While overall market conditions in California continue to improve, providing general justification for the types of increased assessments described in this article, it may still be worthwhile to challenge the assessed value of your real estate holdings, depending on the specific circumstances relating to your property. An accountant or real estate attorney with a background in property taxation can be very helpful in evaluating your options in these situations.
OK so even if they do experience an increase in excess of what’s allowed by Prop 13, that increase should only be experienced if they in fact experienced a reduction a few years back (regardless of whether they asked for one or not)?
And does it follow then that the total post reduction post corrective increase should not be more than the basis value times 2% increase times number of years they’ve owned the property?
Just wondering!
That’s correct, Marina, the annual 2% limit does not apply after a Proposition 8 temporary reduction in value assessment. Keep in mind, however, that the 2% increase compounds each year.
So what happens with those that sold the property prior to this reinstatement??
When real property in California is sold, the seller has no responsibility for property taxes once the seller no longer owns the property, and the buyer becomes responsible for property taxes once the buyer owns the property. In general, California sales contracts include a provision in which the seller and the buyer will agree that the seller is responsible for those property taxes due and owing up to the date that the sale closes and the buyer is responsible for those property taxes that come due after the date that the sale closes, and the title company that handles the sale escrow will apportion the taxes between the buyer and seller accordingly. Under the circumstances you describe, the buyer and seller could agree in their sale contract to modify the usual arrangements on terms negotiated between them, depending on their relative bargaining power.
So say I sold my house a year ago and it had not been reassessed for 15 years for property taxes. Would the new owner living there get a tax bill at 2% per year over the 15 years I lived there because he is the current owner?
No. California law under Proposition 13 requires that the property be reassessed to current market value upon sale. This means that the new owner will be subject to property tax going forward based on the market value of the property at the time of sale (usually the sales price, but not always), with the assessor being allowed to increase the value no more than 2% per year going forward.
Ok. Let me put it this way. Home (land portion) increased from $20K to a little over $53K. The structure increased from $95K to $186K. This is the assessed values from last year to this year. The nearest I can tell is they went back 15 years and assessed each year it had not been done. I’m not sure what happened. Is it legal to go this? I understand the 2% increase thing but if no one in previous years did it, why is it being done in a lump sum now? This is putting a large financial burden on us.