In a declining real estate market, you are allowed a break in your property taxes. Prop 8 Exemption is an exemption to California Property Tax Law which is the basis of property taxes for homeowners in California. Prop 13 was put into place to limit property taxes paid by homeowners. Prop 8 is an exemption to Prop 13 which says that your property tax value should not be higher than market value.
Seems like great news but, it is only a TEMPORARY answer. Prop 8 is something you have to file for most of the time. Sometimes the Assessor will automatically lower your property taxes because he is an elected official and will do what he can to maintain voter approval. Prop 8 Decline in Value works is like this: your date for any fiscal year is January 1st for assessment purposes. The comparable sales for your home for need to have closed within the first quarter of the given year; January 1 to March 31 based on the language of the law. So to get a Prop 8 reduction for 2009, the comparables must have closed between January 1st, 2009 and March 31, 2009. To get this reduction in value there has to be comparable sales of residences similar to yours within the first quarter of the designated year that are lower than your assessed value for that year. If there are no comparable sales that show a lower value for your home during that first quarter, your are out of luck.
The problem here has many reasons: one of the most significant is that the first three months of the year is the slowest time for comparable sales because those tranactions started during the holiday season which is the slowest time for real estate. Real estate sales take 30-60 days to close, so most of the sales that close within the first quarter of the year opened escrow during the holiday season. The sales to choose from are more sparse than later on. When the market movement really starts to show during the second and third quarters of the year you are out of luck because those sales are outside the perimeters for a Prop 8 Exemption reduction.
This is not a great solution because it is only a SHORT TERM reduction in value, so when the real estate market goes back up, and it always does, your base value goes back to what it would have been had you never gotten the break. Numerous property tax specialists appear in declining markets offering to save you on property taxes. They send direct mail that look official and from the Assessor which they are not and unfortunately , taxpayers pay hard earned money to have their property taxes “reduced” only to have their tax bills revert back once the market recovers. Truthfully you never pay the Assessor for any service or review of your value – you pay for that with your property taxes already! Generally, the form you will out with the Assessor is simpler than the form these companies send you in the mail!
Let me illustrate the way Prop 8 Exemption works on an average residence in California. I bought a property in 2005, at the hight of the market, for $500,000, at a 2% trend my current assessed value for 2008 is $530,604. My market value as of the beginning of 2008 is close to $430,000 and since I am a knowledgeable homeowner I apply for a Prop 8 Exemption to get a reduction. So, for 2008 I have a break, Im paying on a value that is $100,000 below my trended base value and saving about $1,250! The real estate market declines and based on the Assessors review, the Prop 8 Decline value is given for 2009 also. So for 2009 I am paying based on the $430,000 which is even better this year since my trended base in 2009 would have been $541,216 and so I am saving about $1,390! Awesome!
Now, the real estate market starts to turn around, and the market values are going up and for 2010 my market value is upwards of $500,000, so the Assessor’s Office alters my Prop 8 Reduction value to $500,000 which is below my 2010 trended base value of $552,040. Absolutely, not as good as having $430,000 as my value. Yet, I am still saving and this year my Prop 8 Exemption value is $52,000 lower than my trended base value I am now saving $650 a year in property taxes. Its now 2011 the market is going up again and now my market value is somewhere around $600,000 and the assessor restores my value to the trended base, which now is $563,080. So, now I’m paying $7,038 in taxes. I so wish I still had that $430,000 property tax base
California Property Tax Law offers a way to PERMANENTLY reduce your property taxes with today’s declining real estate market, based on Prop 13 and essentially avoiding the Prop 8 Exemption and all of its limitations. In addition, find out how to avoid reassessment when you inherit property and how to use the exemptions allowed by Current Property Tax Law to your maximum advantage.
About the Author: Valerie Faltas, Property Tax Expert has been involved in all facets of real estate for over ten years including assessments, appraisals, estates and trusts, investing and much more. She is a Certified Property Tax Appraiser, Licensed Residential Appraiser and a member of the International Association of Assessment Officers. As a real estate investor and advisor she is well versed in all aspects of real estate. To contact Valerie Faltas go to her website: www.propertytaxlittleblackbook.com
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Topics: california property tax, property tax assessment, Real Estate, california property