As indicated in our recent article, real estate values are dropping materially. With these value drops comes the possibility that you may be entitled to real property tax relief. However, unless the assessor is in a shockingly generous mood, you must specifically ask for the lower taxes. On January 1, 2008, if your home was worth less than your 2007 tax value plus 2%, you have the right to ask for a tax reduction. The claim period for the current tax year starts this week, on July 1.
The possibility of a reduction occurs because California voters passed Proposition 8 in 1978. This California constitutional amendment allows a temporary reduction in assessed value when the current market value of your property is less than the current assessed value as of January 1. This change was needed because, while Proposition 13 kept a lid on property taxes when values are rising, it didn’t permit reductions when values fell.
Assessors set the value of all property in their county as of January 1 of each year. The assessments are given to the county tax collector, who sends out property tax bills, usually in late October. You must file a claim form (a Decline-in-Value Reassessment Application) with your county’s assessor by September 15 or November 30, depending on your county.
The assessor will respond to your application. If you disagree with the assessor’s findings, you may file an appeal with the Assessment Appeals Board, which is usually made up of three people. Once an appeal to the Assessment Appeals Board occurs, the county has two years from the date of filing to hear your case. You must pay your property taxes during this time based on the full value you are contesting, or you will face penalties and interest if you are not ultimately successful. If the taxpayer wins, the overpayment will be refunded with interest.
Decline-in-value reassessments are not permanent, but last at least one year. The assessed value will continue to change based on the market value of your property on January 1 of each subsequent year. If the housing market shows a big value increase and you previously obtained temporary tax relief, your assessed value will increase by more than 2 percent a year. However, the assessed value can never increase higher than it would have been if you had never received the temporary reduction. This occurs because base year values continue to increase each year, even during periods when Proposition 8 temporary tax reductions are in effect.
People most likely to qualify for a reduction are those who purchased property in the last few years, and whose property is now worth less than their purchase price. Under Proposition 13, properties are reassessed from scratch only when there is a change in ownership, or when improvements occur. Because of this, those who have owned their property for many years will not qualify for a tax reduction, even if their property is worth less than it was last year. This occurs because the assessed value is still less than the reduced current market value.