When the real estate market is decreasing like it is now and has gone below your assessed value, you are allowed a break in your property taxes. Prop 8 Decline in Value is an exemption to California Property Tax Law which determines all property taxes today for property owners in California. Prop 13 was enacted in 1978 to limit the property taxes paid by taxpayers. Prop 8 Exemption is an exemption to Prop 13 which says that your property tax value should not be higher than the current market value.

Seems like great news but, it is only a TEMPORARY answer. Prop 8 is something you have to file for most of the time. Sometimes the Assessor will automatically lower your property taxes because he is an elected official and will do what he can to maintain voter approval. Prop 8 works is like this: your date for any fiscal year is January 1st for assessment purposes. The comparable sales for your house for 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 The Prop 8 Exemption reduction for 2009, the comparables must have closed between January 1st, 2009 and March 31, 2009. To get this reduction in value there has to be comparable sales of houses similar to yours within the first quarter of the designated year that are lower than your assessed value for that year. If there are no comparable sales that show a lower value for your home during that first quarter, your are out of luck.

This is problematic for several reasons: one of the most significant is that the first quarter of the year has the fewest comparable sales because most of those transactions began during the holiday season. Real estate sales take 30-60 days to close, so many of the sales that close within the first quarter of the year opened escrow during the holiday season when the market is barely moving. So, there are less comparable sales to choose from. When the decline really starts to show during the second and third quarters of the year you are unable to use those comparable sales for a Prop 8 Decline in Value reduction.

This is not a great solution because it is only a SHORT TERM reduction in value, so when the real estate market goes back up, and it always does, your base 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 , homeowners 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!

A typical example of a Prop 8 Exemption on an average home in California. So, I bought a residence in 2005, at the hight of the market, for $500,000, at a 2% trend my current assessed value for 2008 is $530,604. My market value as of the first of 2008 is close to $430,000 and as a knowledgeable tax payer I apply for a Prop 8 Exemption to get a reduction. So, for 2008 I have a nice break, Im paying property taxes on a value that is $100,000 below my trended base value and saving about $1,250! The real estate market goes down and based on the Assessors review, the Prop 8 Reduction value is still given for 2009. So for 2009 I am paying based on the $430,000 which is even better this year since my trended base in 2009 would have been $541,216 and so I am saving about $1,390! Awesome!

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 below 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 Decline 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

In California there is a way to PERMANENTLY lower your property tax base utilizing today’s declining market, based on Current Property Tax Law and essentially side stepping Prop 8 Decline in Value and all of its limitations. Also, find out how to avoid assessment when you inherit property and how to use all exemptions allowed by Prop 13.