Property Tax Relief: Really? Find out the Truth about Lower Property Taxes
When the real estate market is declining like it is now and has gone below your assessed value, you are allowed a break in your property taxes. Prop 8 is an exemption to California Property Tax Law which determines all property taxes today for taxpayers in California. Prop 13 was enacted in 1978 to limit the property taxes paid by taxpayers. Prop 8 Reduction is an exemption to Prop 13 which states that your property tax value should not be higher than the current market value.
This appears to be good news however, it is only a SHORT TERM solution. Prop 8 Decline in Value is generally something you have to file for. The way The Prop 8 Exemption works is like this, your valuation date for the current fiscal year is January 1st. So, the comparable sales for your residence 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 a major problem for many reasons: one of the biggest 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 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 illustrate the way Prop 8 Decline in Value works on an average property in California. I purchased a home 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 near $430,000 and since I am a knowledgeable homeowner I apply for a Prop 8 Decline in Value to get a break. So, for 2008 I have a break, Im paying on a value that is $100,000 below my trended base value and saving around $1,250! The real estate market decreases and based on the Assessors review, the Prop 8 Reduction 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 around $1,390! Awesome!
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's Office changes my Prop 8 Decline 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 Reduction 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
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 and all of its limitations. Also, find out how to avoid assessment when you inherit property and how to use all exemptions allowed by Current Property Tax Law.
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