Potential Changes to California Property Taxes Under Proposition 13

 Posted on December 05,2018 in Property Taxes

In the face of receiving dramatic annual increases in property tax bills, in 1978, California voters passed Proposition 13, which has limited the rate of property tax increases for the past 40 years, so long as certain criteria are met. 

About Prop. 13

Prop. 13 limits property tax increases to 1 percent of the property’s assessed value. Assessed value cannot be increased more than 2 percent per year. Prop. 13 also provides that property taxes may include any bond payments or special assessments as approved by voters. All special assessments must receive a two-thirds vote. Importantly, a key provision of Prop. 13 for tax planning purposes is that properties will only be reassessed after an ownership transfer or if substantial improvements have been made to the property.

Efforts to Change Prop. 13

Recently, the voters of California rejected an effort to expand protections for property owners as set forth in Proposition 5. Prop. 5 would have allowed some homeowners to take lower property taxes with them when moving.

Currently, homeowners who are older than 55, disabled, or live in an area impacted by a natural disaster can transfer property tax assessments with them when buying a new house so long as the purchase price of the new home does not exceed the value of the home being sold. Under current law, such a property transfer can only be done once, and in most parts of California, the new home has to be purchased in the same county. Among other things, Prop. 5 proposed that the one-time cap be removed and that the in-county restriction be lifted. However, voters defeated Prop. 5 in the November 2018 election.

Another proposed development related to Prop. 13 is that voters in 2020 may consider cutting Prop. 13’s protections as to commercial real estate. This proposed measure would reassess large commercial business property every 3 years, and the state legislature could pass a law increasing the frequency of reassessments. 

Supporters posit that the measure would raise an additional $11 billion per year in tax revenues, most of which would go to schools and local government. Many note that this change would essentially partially undo the provisions of Prop. 13.

Call a San Jose, CA Property Taxation Lawyer

If you are anticipating a property transfer in California, you should contact a qualified San Jose property tax attorney to review your plans. There are multiple instances of property transfers that will not trigger a property value reassessment; however, it is critical that the proper documentation be made in order to avoid having to pay higher taxes. Given the intricacies of Prop. 13 and other tax laws, the simple step of contacting an attorney could annually save you thousands of dollars. Call our office today at 408-866-1810.

Sources:

https://www.sfchronicle.com/politics/article/Change-in-California-s-Prop-13-makes-2020-13314983.php

https://la.curbed.com/2018/11/7/18072138/proposition-5-california-election-results-defeat

https://www.investopedia.com/walkthrough/guide-buying-house-us/property-tax-assessment-state/western-region-property-taxes/california-property-tax-guide/