February 23, 2018

What is Proposition 8 – California property tax

CALIFORNIA PROPERTY TAX

What is Proposition 8?

In 1978, California voters passed Proposition 8, a constitutional amendment to Article XIII A that allows a temporary reduction in assessed value when real property suffers a decline in value. A decline in value occurs when the current market value of real property is less than the current assessed (taxable) factored base year value as of the lien date, January 1. Proposition 8 is codified by section 51(a)(2) of the Revenue and Taxation Code.

Real property may decline in market value from one lien date to the next lien however, it will not benefit from a lower assessment unless its market value falls below the current factored base year value. For example, if you purchase your property during a time when the real estate market falls dramatically, or if your property is substantially damaged due to a storm or fire that causes a reduction in your property’s value, it is likely that your property will benefit from a Proposition 8 reassessment. The decline in value is typically temporary and may be the result of changes in the real estate market, the neighborhood, or the property itself.

When the market value of a property on the January 1 lien date falls below the factored base year value {assessed value), the assessor is obligated to review the property and enroll the lesser of the factored base year value or market value. The factored base year value of real property is the market value as established in 1975 or as established when the property last changed ownership or when the property was newly constructed.

A property that has been reassessed under Proposition 8 is then reviewed annually to determine its lien date value. The assessed value of a property with a Proposition 8 value in place may increase each lien date (January 1) by more than the standard two percent maximum allowed for properties assessed under Proposition 13; however unless there is a change in ownership or new construction, a property is assessed value can never increase above its factored Proposition 13 base year value after adjusting for the annual increase.

If my assessed value is reduced under Proposition 8, how long will it last?

Proposition 8 reassessments last at least one year; the value reductions are not permanent. The assessed value may either decrease or increase depending on the market value of your property on January 1 of each subsequent year. Your assessed value, however, will never result in an increased value that is more than the trended Proposition 13 base year value. Once the market value of a Proposition 8 property exceeds its Proposition 13 factored base year value, the Proposition 13 value will be reinstated as the upper limit of assessed valuation.

Please note that your factored base year value continues to increase by an annual inflation factor of no more than two percent each year even during the time your property is assessed under Proposition 8.

Do I file the Proposition 8 application annually?

Any properties that have received Proposition 8 reductions in the prior year as a result of a taxpayer’s representative request for an assessor’s informal review process or as a result of an assessment appeals board decision is reviewed in the following year to ascertain whether that year’s lien date value should be maintained, lowered, or increased.

However keep in mind that you must annually review the assessed value of your property to determine your need to confer again with the assessor or file a formal Application for Changed Assessment. Due to County backlogs the assessor may not be able to review the assessment until after the formal appeal application filing date deadline. In this case, the assessment may remain at the higher trended base year value and your right to appeal has passed for that year and any property tax refunds may be lost.