In a going down real estate market, you are allowed a break in your property taxes. Prop 8 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 homeowners. Prop 8 is an exemption to Prop 13 which says that your property tax value should not be higher than market value.
This appears to be great news however, it is only a SHORT TERM 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 property 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 The Prop 8 Exemption 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 a major problem for several reasons: one of the most significant is that the first quarter of the year has the fewest comparables because those sales started during the holiday season which is the slowest time for real estate, no matter what type of market we’re in. 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 comparable sales to choose from are much less than later on. When the decline really starts to show during the second and third quarters of the year you can’t use those sales for a Prop 8 Decline in Value 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 assessed 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 property in California. I purchased a house 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 around $430,000 and since I am a knowledgeable homeowner I apply for a Prop 8 Reduction 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 near $1,250! The real estate market goes down and based on the Assessors review, the Prop 8 Exemption 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 near $1,390! Fantastic!
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 Decline 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
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 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