The amount of annual property tax California's real property owners
pay depends on the assessed value of the property. Typically, this is
measured by the purchase price, plus an increase of no more than 2% per
year, regardless of how much the property increases in value (thanks to
Proposition 13's limit). For example, if you purchased a home in 2003
for $300,000, your property taxes for 2008 are based on a $300,000 basis,
plus 2% per year for 4 years. This is true even if the current market
value well exceeds $300,000. This 2% increase limit is a major benefit
for owners whose property has increased in value.
However, if your property has decreased in value since you purchased it,
Proposition 8 (passed in 1978 and having nothing to do with the current
same-sex marriage ban Prop 8) also provides a benefit: You can apply for
a "Decline-in-Value Reassessment" to contest the assessed value
of your property, thus lowering your property taxes. Under Prop 8, you
can apply to the County Assessor for a re-appraisal if you can show, primarily
by way of comparables, that the value of your property has declined. Therefore,
if your $300,000 home is now worth $200,000, and comparable homes in the
area support that value, the assessor may grant your request and lower
your assessed value, resulting in lower property taxes.
Some things to keep in mind: Even if the assessor does agree to lower your
assessed value, your basis in the property remains the same your purchase
price and the assessor is not bound by Prop 13's annual two-percent
per year increase limit up to that amount. Therefore, even if the assessor
reappraises your property at $200,000, if there is a sudden spike in property
values, the assessor could reappraise it the following year back at $300,000,
plus 2% per year since the year of purchase.
Nevertheless, there is no harm in exercising your rights under Prop 8 if
you can get your assessed value lowered, it will do nothing but save you
money until your property value increases to or above your purchase price
and the assessor decides to re-visit the issue.