Prop 8 Reduction is a supplement or exemption to Prop 13 which still applies today to all taxpayers in California. Prop 13 was enacted in 1978 to limit the amount of property taxes paid by taxpayers. Prop 8 Decline in Value is an exemption to Prop 13 which says 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 good information yet, it is only a TEMPORARY answer. Prop 8 is usually something you have to file for. The way Prop 8 works is like this: your date for the current fiscal year is January 1st for your property taxes. So, the comparable sales for your property 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 residences similar to yours within the first quarter of the designated year that are lower than your assessed value for that year.
This is a major problem for many reasons: one of the worst is that the first quarter of the year has the fewest comparables because those sales started during the holiday season which is the slowest time for real estate, no matter what type of market we're in. 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 comparable sales to choose from are much less than later on. When the decline really starts to show during the second and third quarters of the year you can't use those sales for a Prop 8 reduction.
This is not a great solution because it is only a TEMPORARY reduction in value, so when the real estate market goes back up, and it always does, your assessed 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 , people 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 give you a typical example of a Prop 8 Exemption applied to a property. Lets say, I bought a home in 2005 for $500,000, at a 2% trend my current assessed value for 2008 is now $530,604. Lets say my market value as of the first of the year is close to $430,000 and of course because I am a knowledgeable tax payer I apply for a Prop 8 Decline in Value to get a reduction. So, for 2008 I get a nice property tax break, Im paying my property taxes on a value that is $100,000 lower than my trended base value and saving close to $1,250 this year! Of course the market continues to decline and based on the Assessors review, the Prop 8 Exemption value is maintained for 2009. So for 2009 I am paying again based on the $430,000 which is even better this year since my trended base in 2009 would be $541,216 and so I am saving at least $1,390! Fantastic right!
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's Office alters my Prop 8 Exemption value to $500,000 which is lower than 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 Exemption 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
There is a way in California to PERMANENTLY reduce your property tax base in today's declining market, utilizing Prop 13 and essentially bypassing Prop 8 Decline in Value and all of its limitations. Additionally, find out how to avoid reassessments when you have inherited property and also how to utilize all the exemptions allowed by Current Property Tax Law.
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
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