The median sales price for single family homes in the Inner East Bay continues to rise (up 12% YOY in Q4 2020), which means in all likelihood, the value of your home is on the rise as well. This means you’ll probably be paying more in property taxes in the coming year. However, while assessed value can rise by 2% annually, the actual tax bill is limited to only a 1% annual increase. This still feels like a big increase in an area where home prices are rising annually by double digit percentages, but our property taxes are likely lower today than they might be thanks to voters back in 1978. In 1978, voters approved Proposition 13, a property tax limitation initiative.

 

Prior to 1978, a homeowner’s property was appraised cyclically, with no more than a five-year interval between reassessments. Since property values were reviewed and updated systematically, assessed values were usually kept at or near current market value levels. Imagine owning your home for 20 years and having to pay taxes based on its current market value; 2% sounds pretty good to some people, right?

 

Proposition 13 states that properties will be reassessed to current market value only upon a change in ownership or completion of new construction, otherwise the annual increase in a property’s “base year value: will be a maximum of 2%. A property’s base year value is its fair market value on the date the property was purchased or newly constructed after 1975. So essentially, Prop 13 converted the market value-based property tax system to an acquisition value-based system.

 

Did you know that prior to 1912, the state derived up to 70% of its revenue from property taxes? Today, California’s counties, cities, schools, and special districts depend on property taxes as a primary source of revenue, something many new homeowners learn when purchasing a home.

 

In November 2020, voters approved another measure that could have a significant impact on the property taxes of homeowners who choose to move within the state of California. We recently highlighted the features of Proposition 19 in another blog post here.

 

Whether you are a homeowner, buying or selling a home, Red Oak’s customized charts can provide you with localized data about your neighborhood, or the one you hope to move to. Reach out for additional information.