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California Real Estate: What the Assessor Won't Tell You About the Proposition 8: Decline in Value Exemption
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by: ValerieFaltas
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Word Count: 936
Prop 8 is a supplement or exemption to Prop 13 which still applies today to all property owners in California. Prop 13 was put into place in 1978 to limit the amount of property taxes paid by property owners. Prop 8 Exemption is an exemption to Prop 13 which states that your assessed value should not be higher than market value for any given year. So, when the market is going down like it is today and has dipped below your current assessed value, you are entitled to some relief.
This appears to be great information yet, it is only a SHORT TERM answer. The Prop 8 Exemption is usually something you have to file for. The way The Prop 8 Exemption works is like this: your date for the current fiscal year is January 1st for your property taxes. So, the comparable sales for your house for this exemption, need to have closed within the first quarter of the given year; January 1 to March 31 based on the language of the law. So to get a Prop 8 Decline in Value reduction for 2009, the comparable sales need to have closed between January 1st, 2009 and March 31, 2009. To qualify for this reduction in value there has to be comparable sales of properties similar to yours within the first quarter of the designated year that are lower than your assessed value for that year.
The problem here has many 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 Exemption 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 base 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 , homeowners 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 home 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 close to $430,000 and since I am a knowledgeable homeowner I apply for a Prop 8 Exemption 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 close to $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 about $1,390! Great!
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 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 Reduction 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
California Property Tax Law offers a way to PERMANENTLY reduce your property taxes with today's declining real estate market, based on Current Property Tax Law and essentially avoiding Prop 8 Decline in Value and all of its limitations. In addition, find out how to avoid reassessment when you inherit property and how to use the exemptions allowed by Prop 13 to your maximum advantage.
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
About the Author
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