If you own a home in California, there are four property tax propositions you need to know. Understanding the four may help you navigate the property tax web of California now and in the future.
The granddaddy is Proposition 13 with all others emanated from it.
Proposition 13 was passed by the California voters in June 1978. It established three primary rules concerning your property tax computation; 1) set a base year value for all residential real estate, 2) capped the assessed value increase each year at 2%, and 3) fixed the property tax rate at 1% per annum.
Once the base year value is set, it can not be changed upward by more than 2% annum. However, when a property is sold then a new base year value is established for the new owner at the sales price. Counties determine base year value for new construction at the time of occupancy and every year afterward would be subject to the 2% increase. The one event without a change in ownership that would override the increased limit happens when a property is improved.
Property tax bills have two values; land and improvements. Improvements equate to the building. So if the building has additional improvements, the new base for improvements would equal old base plus the value of the new improvements. The land base would not be affected and would remain the same. Counties will determine the value of new improvements. The county assumes that all of you are honest and pull necessary permits.
The 1% property tax is not an absolute regarding your tax bill. Additional items like Mello Roos and 1915 Act Bonds affect your overall property tax burden.
Also, in June 1978 along with Proposition 13, Proposition 8 passed. It addresses the situation when property values decreased, such as we saw beginning 2008. Here is the skinny.
Remember, your base year value has already been set and is subject to increases each year. The base line never decreases while you are the owner. Assessed value for tax computation for a particular year can, but not the base year value. The assessed value can go down by any percentage, not subject to a limit. Conversely, a reduction from the base can be recouped in a single year and not limited by the 2% increase limit.
Riverside County assessor’s office produced a simple chart to illustrate prop 8’s relationship to prop 13.
You can challenge your assessed value for the current tax year and have it reduced if you can prove that the current value is unjust. Awarded reduction may not be permanent. I refer you to this pdf concerning appeals.
The two propositions above affect all property owners regardless of just about anything. However, for those individuals reaching 55 years of age, propositions 60 and 90 may give relief.
Are you considering a move resulting in selling and purchasing an owner-occupied California dwelling? Familiarize yourself with the next two propositions to potentially save thousands in future property taxes each year.
UPDATE: Proposition 19 has replaced the value of Proposition 60 and 90 for seniors. The results for seniors remains; you can carry forward your property tax assessments.
If you are 55 years of age or older (with multiple owners only one person needs to meet the age requirement) and considering selling and purchasing an owner-occupied property within the same county, you may qualify for relief under Proposition 60. When your home sells and the sales price is equal to or greater than the replacement home you can carry forward your proposition 13 assessed value of the sold home to the new home. Doing so could be a huge windfall to those that have experienced tremendous appreciation as their current tax base is probably low in comparison to newly assessed homes of equal value.
The replacement property must be purchased or constructed two years after or before the sale of the transferring property. Of course, you apply once both events occur. The transfer is a one-lifetime event. There are exceptions. Check with your particular county. The county will record your social security numbers when you apply. There will be a significant filing fee imposed by your county.
Proposition 90 is the same as Proposition 60 except it allows transferring base year values inter-county. The caveat is that there are only eleven counties that will allow inter-county transfers. Those counties are Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura. So if you are moving to one of those counties, you may be in luck. Assuming you meet all other qualifications spelled out in Proposition 60.
In our area, El Dorado County is the only county that allows proposition 90 transfer. Be aware that it is due to expire October 1, 2021. A measure to allow transfers to any county in the state beginning January 1, 2019, if approved by the voters, is working its way through the state legislature.
UPDATE June 2, 2019
El Dorado County no longer allows Proposition 90 exclusion. Also, it appears the measure for allowing assessment transfers to any county by seniors has died in committee; counties were not in favor.
Based on articles I read, before 1978 California was unrelenting when it involved taxing property owners. Then the rate was 3% of assessed value, no limit on increased valuations. Since the passage of Proposition 13 creative people at the state level have tried to eliminate or circumvent it. The latest is the SB 231 proposal, adding fees on property tax bills for dealing with stormwater.
So, I hope the next time you receive your property tax bill you will take the time to study and understand the numbers. For many of you, your property tax bill is a significant chunk of your yearly home expense. When looking to finance a home, the property taxes are part of your debt-to-income ratio and will affect your ability to borrow. I can provide you with the estimated property tax liability for any resale home purchase you may be considering.
Counties determine assessed value on January 1 of each year.
Update 01/05/2021–With the passage of Proposition 19, effective April 1, 2021 Proposition 60 and 90 are no longer relevant. Proposition 60 rules now applies to movement within all counties. Proposition 90 is no longer in affect. You will need to contact the assessor’s office of the county of new residence to have the tax bases transferred.
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