Pleasant Ranch

Prop 8 Reduction is a supplement or exemption to Prop 13 which still applies today to all taxpayers in California. Prop 13 was put into place in 1978 to limit the amount of property taxes paid by homeowners. Prop 8 Decline in Value is an exemption to Prop 13 which says that your assessed value should not be higher than market value for any given year. So, when the market is declining like it is today and has dipped below your current assessed value, you are entitled to some relief.

This appears to be good news however, it is only a TEMPORARY solution. Prop 8 Decline in Value is generally something you have to file for. The way Prop 8 Decline in Value works is like this, your valuation date for the current fiscal year is January 1st. So, the comparable sales for your house for Prop 8 purposes, need to have closed within the first three months of the year; from January 1 to March 31 for that given year based on the language of the law. For example to get a Prop 8 Decline in Value reduction for 2009, the comparable sales must have closed between January 1st, 2009 and March 31, 2009 based on the law. Basically in order to get a reduction in value there has to be closed sales of similar properties within the first quarter of the designated year that are lower than your assessed value.

This is problematic for many reasons: one of the worst is that the first quarter of the year has the fewest comparable sales because most of those transactions began during the holiday season. Real estate sales take 30-60 days to close, so many of the sales that close within the first quarter of the year opened escrow during the holiday season when the market is barely moving. So, there are less comparable sales to choose from. When the decline really starts to show during the second and third quarters of the year you are unable to use those comparable sales for a Prop 8 Decline in Value reduction.

This is not the best solution because it is only a TEMPORARY reduction in value, so when the market starts to climb back up, and it always does, your old assessed value gets restored to what it would have been had you never gotten the reduction. Many property tax specialists appear in declining markets claiming to be able to save you on property taxes. They send mailers that look like they are from the Assessor which they are not and sadly, homeowners pay good money to have their taxes “lowered” only to have their tax bills revert to higher rates 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!

A typical example of a Prop 8 Decline in Value on an average house in California. So, 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 first of 2008 is near $430,000 and as a knowledgeable tax payer I apply for a Prop 8 Reduction to get a break. So, for 2008 I have a nice break, Im paying property taxes on a value that is $100,000 below my trended base value and saving near $1,250! The real estate market declines and based on the Assessors review, the Prop 8 Exemption value is still given for 2009. 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! Fantastic!

The real estate market turns around, and the market values are rising and for 2010 my market value is higher than $500,000, so the Assessor changes my Prop 8 Reduction value to $500,000 which is lower than my 2010 trended base value of $552,040. Definitly, not as nice as having $430,000 as my value. Yet, I am still saving money and this year my Prop 8 Decline value is $52,000 lower than my trended base value I am saving $650 a year in property taxes. Its now 2011 the real estate market is rising again and now my market value is near $600,000 and the assessor restores my value to the trended base, which now is $563,080. So, I’m paying $7,038 in taxes. If I still had that $430,000 property tax base

There is a way in California to PERMANENTLY reduce your property tax base in today’s declining market, utilizing Current Property Tax Law and essentially bypassing Prop 8 Decline in Value and all of its limitations. Additionally, find out how to avoid reassessments when you have inherited property and also how to utilize all the 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