Annual value reviews in a changing real estate market
Since the decline of the real estate market in 2008, the Assessor has worked diligently to review taxable values in order to fulfill the mandate of Proposition 8. Passed in 1978, Proposition 8 requires the Assessor to annually enroll either a property’s factored base year value or its market value on January 1, whichever is less. The California Board of Equalization defines a factored base year value as:
- market value as established in 1975 ,or
- market value as established when the property last changed ownership ,or
- market value when the property was newly constructed.
Also referred to as “Prop 13” values, factored base year values cannot increase more than 2% in a given tax year. When current market values replace higher Prop 13 values on the tax roll, the market value is commonly referred to as a “Prop 8” value. A Prop 8 value may increase or decrease more than 2% each year as the real estate market fluctuates, but it will never exceed a property’s Prop 13 value. When the current market value of a property receiving Prop 8 benefits exceeds its Prop 13 value, the Assessor reinstates the Prop 13 value.
• The above graph illustrates a home purchased for $95,000 in 2003.
• Each year after purchase, the home’s Prop 13 value was increased by an increment of 2% ($95,000 x 1.02 = $96,900).
• Between 2003 and 2007, the market value of the home increased significantly, but the property was taxed on the lower Prop 13 value.
• Between 2008 and 2010, the home’s value decreased below the Prop 13 value and was taxed on the lesser market value.
• In the graphic example, the 2011 market value rose above the Prop 13 value and the taxes were returned to the lesser Prop 13 value.
• Each year property taxes are based on the lesser of two values: Prop 13 or market.