California Tax Law Overview
In 1978, under Proposition 13, the concept of base-year value* for property tax was established. The assessments for the year 1975-76 function as the original base-year values. Following this, new base-year values are created only when a property is purchased, new construction is done, or if the property changes ownership. Also under Prop 13, the base-year value can only increase a maximum of 2 percent per year, as set by the State Board of Equalization, to keep up with the inflation of money.
Under normal circumstances, the Factored-Base value (base value plus the inflation factor) is well under the market value as time goes by. This was the intent of Proposition 13. It revolved around the belief that a person who owns their property for a long time should not be taxed higher because their neighbors are buying during a higher real estate market.
In order to protect property owners when the real estate market fluctuates downward, another proposition was passed. Proposition 8 was established to protect property owners from being taxed on a value that is higher than current market. The Assessor can review your assessed value and enroll the lower of either the factored-base value or the current market value.
Temporary Value Reductions
The Assessor may temporarily lower the assessed value of your property, if the market value as of lien date*, January 1, of the current year, was below the total assessed value shown on your annual property tax bill. A decline in market value* can be the result of changes in the property, the neighborhood, or the real estate market. If you think that your property is assessed at a value that is above the market value as of January 1, you can call our office to request that we review your case.
It is important to note that reductions in assessed value are temporary and reviewed every year until the Factored-Base-Year value* is lower than market value. In addition, Prop 8 assessments are not restricted by the Prop 13 two percent maximum increase. However, property assessed under Proposition 8 cannot be assessed at a level higher than its Prop 13 Factored-Base-Year value.
Calamity & Disaster Relief
If property is damaged by a calamity, like fire, the assessed value can be reduced for the period in which the property is being repaired. The damage from the calamity must exceed $10,000 in value and an application must be filled out in the Assessor's Office within one year of when the calamity occurred in order to receive the reduction. Once repairs are completed, the original Prop 13 base-year value will be reinstated.
Base-Year Value: Under Proposition 13, the assessment year 1975-76 functions as the original base-year value. From then on, new base-year values are created in any assessment year in which the property is purchased, new construction is done, or if the property changes ownership.
Lien Date: January 1st, is the date when taxes become a lien on property, and the time when property is valued for tax purposes.
Market Value: As defined in Revenue and Taxation Code Section 110, "The amount of cash or its equivalent that property would bring if exposed for sale in the open market under conditions in which neither buyer nor seller could take advantage of the exigencies of the other, and both the buyer and seller have knowledge of all of the uses and purposes to which the property is adapted and for which it is capable of being used, and of the enforceable restrictions upon those uses and purposes."
Factored-Base-Year Value: The base year value defined above adjusted not more than 2% annually for inflation. This adjusted value is known as the "factored base year value."