California Taxes: Understanding Prop 13

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Property taxes in California have been a much-debated issue in the state. Communities want to raise money for schools, community spaces, and infrastructure projects, but lawmakers also don't want to drive away homebuyers and investors, either. The state does have property tax caps to protect owners, but there's a little more to the story than that. 

The History of Proposition 13

Before June of 1978, the average tax rate in the state was slightly less than 3% of the market value of the property. If the assessed value of the home increased, there were no limits placed on the tax exacted from the owner. It explains why Prop 13 was passed by around 67% of California voters in an effort to curb the cost of property taxes.

How Prop 13 Works

Prop 13 froze property values at the 1976 assessment and set limits on future taxes. Assessment values were capped at 1% of the full cash value at the time of acquisition. All done, Prop 13 lowered the taxes of commercial, residential, and farmland property by about 57%. Prop 13 has helped protect owners of every variety for several decades now, especially considering the meteoric rise in real estate since the 1970s. 

What That Means for You

Property tax caps give you a way to set a realistic budget from year to year. If your home triples in value in a year, you won't have to worry about paying property taxes based on the increased amount. Similarly, if you decide to invest in your home to improve its market value, you won't have to worry about how that will affect your taxes either. However, the property tax paid can still vary widely depending on the block in which you purchase their home.

Variations in Local Government 

Property tax caps still allow for flexibility based on the financial priorities of local lawmakers. San Francisco charges a little more for property taxes, Orange County charges a little less. In 1982, Mello Roos laws were created in the state as a way to skirt around the property tax caps. These regulations essentially permit local officials to charge a separate tax for homeowners that functions much the same as a property tax does for the community. This controversial loophole is not observed by many communities though, so you may need to do some digging to find out if it applies to you.

Property taxes are a matter of public record, so you can research the average amount in a given area either online or through the county registrar. You can also talk to a real estate agent to learn more about the politics and regulations that affect your preferred neighborhoods.