Property Taxes in California

Property tax is a tax that is imposed on persons because of their ownership or possession of property and is measured by the market value of the property.  It is an important revenue source for public schools, fire protection, libraries, and parks and recreation.

Prior to 1978, property tax in California was simply based on a percentage of the assessed value of a home.  Every few years, the county assessor would look at the market of value of homes in a neighborhood and set a new assessment.  This meant during the high growth and inflationperiods of 1970s, as home values skrocketed, so did property taxes.

Homeowners paying $500 a year in property taxes in 1972 found themselves looking at a $2,000 tax bill in 1978. Between 1974 and 1978, the average value of a California home jumped from $34,000 to $85,000, and property taxes
rose with it. - SF Gate

In 1978, California’s voters revolted and passed Proposition 13 which limits the taxation of property to 1.2% of a property’s assessed value and limit property tax increases to no more than 2% of the assessed value of the property per year.

However, when  a home is sold or significantly improved through renovation, a new “base year value” is established.

What is Supplemental Tax Assessment?

The Santa Clara County Assessor’s Office will reappraise property immediately upon change of ownership or completion of new construction.  They will issue a supplemental assessment which reflects the difference between the prior assessed value and the new assessment. This value is then prorated based on the number of months remaining in the fiscal year, ending June 30th.

For example, if property is purchased on September 15th with a market value of $550,000, and it has a prior assessed value of $450,000, this will result in a supplemental assessment for the difference ($100,000) prorated for the remaining months in the fiscal year (9 months from October through the following June):

$550,000 New Purchase Price/Market Value

-$450,000 Prior Assessed/Taxable Value

$100,000 Supplemental Assessment

x 9 1/2 Remaining months in Fiscal/Tax Year

$75,000 Supplemental Assessment

x 1% Tax Rate

$750 Supplemental Tax Bill

This supplemental tax bill is in addition to the regular tax bill which is based on the assessed value as of March 1st of each year.

Assessment Reductions

Don’t pay for services provided FREE by the Assessor.  There has been a lot of news lately about home owners receiving “official” looking documents offering assessment reductions.  The county assessor allows home owners to receive reductions in two ways without any extra charge.

Exemptions

Under certain circumstances described on the Santa Clara Assessors website,
California law allows taxpayers the ability to permanently or temporarily reduce their assessed value, and/or transfer their protected Proposition 13 assessed value.  For example, parents can transfer property to their children without triggering a reassessment.

Proposition 8

This is a request for an assessment reduction, and is separate from a formal assessment appeal filed with the independent Assessment Appeals Board.

Note because of current market conditions,  the Santa Clara County Assessor’s Office has been proactively providing temporary Proposition 8 reductions and will continue to do so in 2009.   Property owners are urged to wait until after the Assessor’s Office completes their review in late June when all 460,000 property owners in Santa Clara County will be sent a notification card.

Propositon 8 amended Proposition 13 allowing for temporary reductions when the current market value of a property has fallen below its current (Prop 13) assessed value. Once a Prop 8 value has been enrolled, a property’s value must be annually re-appraised to determine whether its then current market value is less than its Prop 13 factored base year value.

When and if the market value of the previously reduced assessment (Prop increases
above its Prop 13 factored base year value, the Assessor will once again enroll its Prop 13 factored base year value.  Here’s a simplified example:

Let’s say you bought a home for $1,000,000. The Assessor determined that the purchase price was the fair market value (based on comparables sold in the area), so the new base year value of the property was set at $1,000,000.

Over the next year, real estate values increased and you could sell your home for $1,100,000. The factored base year value could only increase 2% to $1,020,000, because of the limits set by Prop. 13., thus the assessed value is $1,020,000.

What if the market value goes down?  Proposition 8 allows the Assessor to temporarily reduce the assessed value of property.  Let’s say the market value of the house has dropped to $900,000.  At the same time, the last factored base year value had increased another 2% to $1,040,400.  The Assessor will compare the two values, thus the assessed value drops $900,000.

So, what if the market jumps the next following year where you could sell your home for $1,300,000?   The factored base year value is increased another 2% from $1,061,208.  Now the factored base year value is lower than the market value, so the Assessor enrolls an assessed value of $1,061,208. Your assessed value goes up from $900,000 the last year to $1,061,208.

So, can the Assessor increase your assessed value more than 2% in one year? Yes, if you received a temporary (Prop. reduction in the previous year.

Santa Clara Assessor’s Calendar of Important Dates