Proposition 8, passed in November 1978, amended Proposition 13** to recognize declines in value for property tax purposes. As a result, Revenue & Taxation Code Section 51 requires the Assessor to annually enroll either a property’s Proposition 13 base year value factored for inflation, or its market value as of January 1st, whichever is less.
Decline in market value, Prop 8 assessments, are TEMPORARY reductions that recognize the fact that the current market value as of the January 1 lien date of a property has fallen below its current Prop 13 factored value. Once a Prop 8 reduced value has been enrolled, that property’s value must be reviewed each year as of January 1, to determine whether it's current market value is less than its Prop 13 factored value. Prop 8 values can change from year to year as the market fluctuates. When the market value of the Prop 8 property increases above its Prop 13 factored value, the Assessor will once again enroll its Prop 13 factored value. In no case may a value higher than a property’s Prop 13 factored value be enrolled.
Properties enrolled under Prop 8 provisions are not subject to the 2% annual increase limitation that applies to those enrolled under Prop 13 provisions.
The Process is as follows:
Property owner provides Assessor with facts they feel justify a reduction in value and requests a review of the property’s value. (The Assessor may initiate the review if the problem is discovered independently*.)
Appraisal staff reviews market data, estimates the property’s market value as of January 1 and then compares this market value to the property’s current Prop 13 factored base year value.
If the January 1 market value is below factored Prop 13 value, then:
- Assessed value is lowered to market value for next fiscal year
- Owner is notified of reduced value
- New tax bill is based on lower value for next fiscal year
- The following year, Assessor repeats process and enrolls the January 1 market value at that time or Prop 13 factored value, whichever is lower
If January 1 market value is higher than factored Prop 13 value, then:
- No change in assessed value is made, and
- Owner is notified that value will not be reduced
- If owner still feels value should be reduced, then owner may file an assessment appeal with the Assessment Appeals Board, July 2 - Nov 30 every year
- Appeals Board hears evidence from the property owner and Assessor; the Board then determines proper assessed value
*The Assessor may also initiate the Prop 8 process without a request from an owner.
The office constantly monitors market conditions and, when practical, lowers assessed values on a mass basis. Owners are notified and may file an Assessment Appeal if they feel the value was not lowered sufficiently. Read more about the Assessment Appeals process and deadlines.
Although the market values of all properties may suffer a significant decline during a recession, not all will qualify for a Prop 8 reduction. The current market value must fall below the prop 13 factored base year value (assessed value) before the Assessor can recognize the decline. Following are examples of how the Assessor processes declines in value.
Examples of Assessments Involving Properties Declining in Value:
Example 1
Home purchased January 2005, for $400,000 and assessed with $400,000 base year value.
On January 1, 2006, factored base year (assessed) value is $408,000 ($400,000 +2% inflation) but market value has declined to $300,000.
Action:
Assessor reduces assessed value to $300,000 for 2006-2007 assessment roll.
On January 1, 2007, the home’s value continues to decline and is now $280,000, while its factored base year value has risen to $416,160 ($400,000 + 2% inflation compounded for 2 years.)
Action:
Assessor reduces assessed value to $280,000 for 2007-2008 assessment roll.
On January 1, 2008, the homes market value increases to $350,000 while its’ factored base year value rises to $424,483 ($400,000 + 2% inflation compounded for 3 years.)
Action:
Assessor raises assessed value to $350,000 for 2008-2009 assessment roll.
On January 1, 2009, the home’s market value increases to $450,000 while its’ factored base year value rises to $432,972 ($400,000 +2% inflation compounded for 4 years.)
Action:
Assessor reinstates factored base year value of $432,972 for the 2009-10 assessment roll.
Example 2
Home is purchased in 1986 for $130,000.
On January 1, 2005, the current market value of the home has risen to $300,000 well above its’ Prop 13 factored base year value of $185,713 ($130,000 + 2% inflation compounded for 19 years.)
For January 1, 2006, the market value falls to $200,000. This is still above the Prop13 factored base year value of $189,427 ($130,000 + 2% inflation compounded for 20 years.)
No Prop 8 reduction is granted for the 2006-2007 assessment year, even though the property has lost $100,000 in value over the last year. The factored base year value ($189,427) is still less than the market value ($200,000.)
It is important to understand that Prop 8 reductions are not permanent and may decrease or increase more than 2% from year to year. Also, Prop 13 base year values suspended by Prop 8 values continue to increase by an annual inflation factor of no more than 2% per year.
If you have any questions about the Decline in Value Prop 8 process, you may direct them to your County Assessor's Office.
Information deemed reliable but not guaranteed. Consult your legal or real estate professional with questions pertaining to your specific situation.
** Proposition 13:
Proposition 13 was a 1978 amendment of the California Constitution (Article XIIIA), aimed at controlling housing price increases. It limited the assessed value of existing homes to 1975-1976 values, limited tax rates to one percent of assessed value (plus any voter-approved surcharges), and limited inflation-based increases to two percent annually. Proposition 13 value is the full market value, adjusted according to these limits. Thus, the factored base year value of the original residence is the original base year value, adjusted by the annual inflation factor for each taxable year under the current ownership.
Article #24 6/9/08
Provided by Jackie DiSalvo
Financial Title
Account Manager
(408) 687-7553
jdisalvo@financialtitle.com
