Property Tax Relief: Really? Find out the Truth about Lower Property Taxes
In a decreasing 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 taxpayers in California. Prop 13 was enacted to limit property taxes paid by property owners. Prop 8 Decline in Value is an exemption to Prop 13 which states that your property tax value should not be higher than market value.
Seems like good news but, it is only a TEMPORARY answer. Prop 8 Decline in Value 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 residence 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 homes 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 several 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 Decline in Value reduction.
The reason why this is not the best solution is that it is only a SHORT TERM reduction in value, as I stated earlier, so when the market starts to climb back up your old assessed value gets restored to what it would have been if it trended normally and you never had the reduction. Many alleged tax specialists pop up in declining markets often sending you mail claiming to be able to save you on property taxes. Unfortunately, taxpayersoften pay good money to have their taxes lowered only to have their tax bills revert to higher rates once the market recovers. The truth is you never have to pay the Assessor for any service or review of your value - you pay for that service with your property taxes already!
Let me give you a typical example of a Prop 8 Reduction applied to a house. Lets say, I purchased a property in 2005 for $500,000, at a 2% trend my current assessed value for 2008 is now $530,604. Lets say my market value as of the first of the year is close to $430,000 and of course because I am a knowledgeable tax payer I apply for a Prop 8 Exemption to get a reduction. So, for 2008 I get a nice property tax break, Im paying my property taxes on a value that is $100,000 lower than my trended base value and saving about $1,250 this year! Of course the market continues to go down and based on the Assessors review, the Prop 8 Reduction value is maintained for 2009. So for 2009 I am paying again based on the $430,000 which is even better this year since my trended base in 2009 would be $541,216 and so I am saving at least $1,390! Fantastic right!
Well, the market starts to turn around, and the values are climbing and for 2010 my market value is around $500,000, so the Assessor adjusts my Prop 8 Reduction value to $500,000 which is lower than my 2010 trended base value of $552,040. Definitely not as great as having $430,000 as my assessed value. However, I am still saving and this year since my Prop 8 Exemption value is $52,000 lower than my trended base value I am now saving $650 a year in paid taxes. Well, for 2011 the market is skyrocketing gain and now my market value is somewhere around $600,000 and so the assessor restores my value to the trended base, which for this year is $563,080. So, I am now paying $7,038 in taxes. I wish I still had that $430,000 base
In California there is a way to PERMANENTLY lower your property tax base utilizing today’s declining market, based on Current Property Tax Law and essentially side stepping Prop 8 Decline in Value and all of its limitations. Also, find out how to avoid assessment when you inherit property and how to use all exemptions allowed by Prop 13.
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
