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Wednesday, 16 May 2007

Reducing Your California Property Tax
Posted in Articles

By Brian Yui

You can hardly pick up a newspaper or turn on the TV without hearing about the faltering real estate market. Now it’s time to turn that slowdown to your advantage. You may be eligible for a reduction in property tax, especially if you bought your home in the last couple of “boom” years of the real estate market.

The Basics
To fully understand your property taxes, it’s helpful to know the terminology:

  • Taxable Value—the value upon which property taxes are calculated. For most homes, this is the adjusted base year value or the property’s current market value, whichever is lower.
  • Fair Market Value—is the amount a property would sell for in the open market
  • Base Year Value—this is the property’s full cash value as of the date of the most recent change in ownership or completion of new construction.
  • Adjusted Base Year Value—the property’s base year value adjusted for inflation, not to exceed 2% per year.

So, how is your property tax is calculated? The amount you are billed is determined by the County Assessor in accordance with the state’s constitution. In California, Proposition 13 limits the general property tax rate to 1% of the assessed value, plus an amount for the debt service on any bonds approved by popular vote. Your tax rate will vary depending upon where the property is located and the bonds passed for that area.
California: Putting Proposition 8 to Work

Proposition 8, passed in 1979, allows a temporary reduction in property tax assessments. The proposition states that if the market value on January 1 of any current year falls below the value shown on your property tax bill, the Assessor’s Office must temporarily lower the value to reflect market conditions.

In recent years with the high rate of real estate appreciation, most assessed values in California are below market value. Let’s say you bought your home in 1990 for $300,000. The base year value would be $300,000. The bill you receive for 2007 property taxes would show the adjusted base year value (the property’s original price plus an inflation rate of 2% or less per year). Chances are that your property is worth considerably more today than adjusted base year value you are being billed, as real estate appreciation has exceeded the maximum 2% inflation rate allowed by Proposition 13.

If, on the other hand, you bought your home in the last couple of years at the top of the recent market boom, there is a good chance that the full cash value, or fair market value, of your home is less today than when you purchased the property. For example, if you bought a condo in 2005 for $520,000, in today’s market, it might bring $470,000. To ensure that you are paying the fair market value in property taxes, you should contact the Assessor’s Office for a review. Be prepared to provide comparables (recent sales’ prices for similar properties) or an up-to-date appraisal of your home to support your opinion of the property’s value.

If your review is approved, the assessed value will be lowered to reflect the decline in value of your home. Remember that this is temporary; the Assessor’s Office will review your home on an annual basis. When the market turns around and the value increases, the assessment of your property will also increase. You can find a list of County Assessors at . Call your local office to request a Proposition 8 review form.

Other Tax Relief Options
Propositions 60, 90, and 110 provide for the transfer of a property’s base year value from an existing residence to a replacement residence, for qualified persons over the age of 55 or persons of any age who are severely and permanently disabled. The new home must of be of equal or less than the market value of the prior residence and in the same county. Here’s an example to help illustrate how these propositions work:

Jim, age 63 and his wife Ellen, age 54, plan to sell their large family home. They have lived there for many years, but with their kids away in college, they no longer need such a large house. The Proposition 13 base value of their home was $40,000 and has only grown to $68,000 by 2006. Their property tax bill is only $730 per year, though their home today is worth more than $500,000. Jim and Ellen have found a smaller townhome they would like to buy for $400,000. Under Proposition 13, this change of ownership will establish a new base year value for the townhome calculated upon the purchase price of $400,000; accordingly, their property tax bill will jump from $730 to about $4,000 per year. To avoid this increase in property tax, they can use tax relief options offered under Proposition 60: Jim and Ellen could move to the townhome and still pay $730 per year in property taxes, plus future increases not to exceed 2%. They qualify by having one of the owners, Jim, be over 55 years of age on the date the original house is sold and buying a new home of equal or lesser market value.

There are a few other requirements to qualify. See for more on these tax-saving options and check with your County Assessor’s office for relief options in your area.

Tax Assistance Programs
Persons who are blind, disabled, or at least 62 years old, and meet certain minimum annual income thresholds may qualify to participate in the Franchise Tax Board's Homeowner Assistance program. This program provides cash reimbursement of a portion of the property taxes that you paid on your home.

If you don’t receive cash reimbursement, you may qualify for tax postponement. The postponed taxes are a lien on the home and become due (with interest) upon moving, the sale of the home, or death. To find out more about both programs, call the Franchise Tax Board at 1-800-852-5711, or visit
Disabled veterans of military service may be eligible for up to a $154,661 property tax exemption.

For example, if your home is assessed at $400,000, the first $154,661 is deducted from the total assessment for purposes of the tax calculation. Qualifying veterans must have been disabled due to a service-related injury or disease while in the armed forces, and must be a resident of California as of January 1 of the year in which they are applying for an exemption.
Veterans with 100% disability, or partially disabled and unemployable, or their unmarried surviving spouses, are eligible for up to a $103,107 property tax exemption. Or, if total household income does not exceed $46,302, the 100% disabled veteran may qualify for up to a $154,661 property tax exemption. Call your local Veterans Administration or the Franchise Tax Board for more information.