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California Property Taxes Explained

California Property Taxes Explained

Unless you live under a rock, you are likely aware of the housing market explosion over the past couple of years. Low mortgage interest rates and the remote workforce triggered by the COVID-19 pandemic have created a blood-thirsty demand for housing, and supply is miles behind. 

As the real estate market goes, so do property taxes. When home values rise or fall, your County Assessor's Office captures revenue by raising or lowering your property taxes and collecting those dollars every year. In Sacramento, we are experiencing our ninth straight year of property tax increases, and don’t expect that trend to end in 2022. According to the 2021 Annual Report published by the Sacramento County Assessor’s Office, the assessed value for the county increased by over 5%, with most properties seeing an increase of 1.01%. You may ask, “If the overall values jumped over 5%, how did most properties only see a 1.01% increase in property taxes?”

Proposition 13 (Prop 13)

In June 1978, California voters passed a property tax limitation initiative to protect homeowners from excessive property tax increases. The legislation was a boon for Californians, and many homeowners received an additional boost as their assessed values were rolled back to the assessed values effective in 1975. 

Under the rules of Prop 13, a new base year value is established only when a property’s ownership is sold or transfers, or land is improved by new construction. The overall increase in a county’s assessed value is largely influenced by a new base year value being established by these factors.

The major benefit created by Prop 13 was a limitation to yearly tax rate and base year property value increases. The tax rate was limited to a yearly increase of 1% plus the rate necessary to fund local bonds. Base year value increases were limited to the percentage change in the Consumer Price Index (CPI) or 2%, whichever is less. Although this affects the bulk of properties in the county, it has far less impact on revenue growth than sales, transfers, and new construction.

Proposition 8 (Prop 8)

After the passage of Prop 13, the question was raised about what happens when property values go down. In November 1978, California voters passed Prop 8, a direct response to handling assessed values when real estate suffers a decline in value.

When real property value drops beneath its assessed value, as we saw in 2008-2010, Prop 8 allows for properties to be reassessed at the current lower market value. Other triggers for Prop 8 are deteriorating property conditions or when damage occurs from a fire or storm. California's severe wildfires have become a significant issue in the past several years and have created reductions in many counties' base-year property values.

If a homeowner feels a property’s assessed value is too high or a change has occurred to the property’s physical condition, they can submit a request for review or can file an application to go before the County Assessment Appeals Board.

How does this impact you?

If you’ve been in your home for a while and are looking to make a move, expect to pay more in property taxes. When you purchase your new home, you will be establishing a new base year in line with current values. If you want to check what your property tax might be on a new purchase, you can use an online property tax calculator to get an estimate.

That being said, voters did pass Proposition 19 in 2021 which permits homeowners who are 55 and over, severely disabled, or whose homes were destroyed by wildfire or disaster, to transfer their primary residence’s property tax base value to a replacement residence of any value, anywhere in the state. Prop 19 does not afford the same relief for investment properties.

If you’ve ever had questions about fluctuations in your property taxes, you can reach out to your realtor or your county assessor's office for more information about your particular situation. Remember, too, if your property’s value has been affected negatively, you have the right to advocate for a reduction of your taxes. It’s up to you!