June 4, 2009
Proposition 8 Decline in Value: Really? Find Out What the Assessor Won’t Tell You!
When the real estate market is decreasing 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 Prop 13 which determines all property taxes today for taxpayers in California. Prop 13 was enacted in 1978 to control the property taxes paid by homeowners. 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 Prop 8 works is like this, your valuation date for the current fiscal year is January 1st. So, the comparable sales for your home 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.
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.
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!
Let me illustrate the way Prop 8 Exemption works on an average property in California. I bought 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 around $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 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 close to $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 below 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
In California there is a way to PERMANENTLY lower your property tax base utilizing today’s declining market, based on Prop 13 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
Filed under Finance by Valerie Faltas
