Proposition 13 is the driving force behind all property tax assessments, whether homeowners realize it or not.
Prior to the proposition, passed on June 6, 1978, properties were systematically reviewed and updated, keeping assessed values at or near market value constantly.
Enter Proposition 13, swooping in to respin the narrative and limit the amount of times that a property can be reassessed.
As your expert real estate agent, I am here to help you understand the rhyme and reason behind your property taxes, which can sometimes seem like a jumbled mess.
Understanding Prop 13
This week, I will break down the basic formula for understanding Proposition 13 by providing history, outlining the rules and answering common questions.
Let’s start with a simple equation for determining your property’s value with Proposition 13:
Real property value = base year value + a yearly inflation index rate not exceeding 2%.
(In addition, there is also a limit on property taxes to 1% of the assessed value plus voter-approved taxes.)
History of Prop 13
The proposition, which is a property tax limitation initiative, was first overwhelmingly approved on June 6, 1978 by California voters, according to California Property Tax by the California State Board of Equalization.
It is said that the initiative was a collective response from taxpayers who were sick of the dramatic increase in property taxes.
The Proposition brought back most real property assessments to a 1975 market value. This established the first base year in California. Now, a new base year is only reestablished when there is a change in ownership or new construction on a property.
Before 1978, real property was appraised cyclically with a 5-year gap (at most) between reassessments. Because of the frequency of reassessments, property’s assessed values were typically kept at or near the current market value.
Since Proposition 13 only reassesses with a change in ownership or a new construction, properties that have not undergone either of those two things since 1975 will stay at a 1975 base year value.
Considering these changes, new homeowners should not be shocked if their assessment is higher than their neighbors who have owned property for years. As such, the assessed values of recent home purchases tend to mirror approximate market values.
Since assessed values cannot be increased by more than 2% per year, it is common for longtime homeowners to have a lower tax liability than people who have acquired property recently.
It is also important to note that there is some controversy surrounding Proposition 13, specifically in regards to this gap.
A few rules
A few rules with Proposition 13:
- The maximum amount of property tax cannot exceed 1% of the property’s assessed value, plus any bonds or fees approved by voters.
- The new value determined with reassessment (upon change of ownership or new construction) will be increased each year by an inflation index that will not exceed 2% per year.
- Properties purchased before March 1, 1975 will still have a base year value of the 1975 assessment.
As a trusted real estate agent, I am here to keep you informed about the most up-to-date information of all things real estate. It is my goal to make sure you understand the essential California propositions that will help support your home-owning journey.
If you have any questions about Proposition 13, or are interested in learning more about the implications of your property’s taxes, don’t hesitate to reach out at 619-568-0568 or info@simonerealestategroup.com.
I am always here to help answer any questions and keep you informed on the ever-evolving landscape of real estate properties!
