How do Property Tax Assessments work in California?
We’re often asked about property taxes on homes and how the value is calculated for assessments. The information below outlines how California determines future increases or decreases in your property tax amount.
(original article updated to reflect most recent tax year)
In 1978, California adopted Proposition 13, which defined how your property taxes are calculated.
Establishing annual taxable value of a home
The annual taxable value of a home is determined by calculating which of the following amounts is lower:
- Market Value of that home on January 1, or
- Factored Base Year Value (FBYV)
Every January, homes are assessed by your county to determine their market value (using comparable home sales during that time). This figure is then compared against the FBYV to determine the basis for your taxes.
Factored Base Year Value (FBYV)
The FBYV in year one of ownership starts out as the market value of a home when the property was transferred (applies to properties acquired after 3/1/75). So a home purchased for $300,000 would have a starting FBYV of $300,000.
The FBYV of properties that have not changed ownership since the prior January 1 is calculated by taking the FBYV from the prior year and adding 2% per year.
So ultimately your property taxes can increase a maximum of 2% per year from the original FBYV. However, there are times when a home can increase more than 2% in one year. This would occur if your property experienced any of the following:
- A Change In Ownership
- New Construction
- Temporary reduction(s) in taxable value in prior tax year(s)
Let’s assume you are trying to calculate your 2019-2020 taxes on a home that had a market value of $300,000 on January 1, 2018. Your first step would be to look at your previous year’s FBYV (taken from the prior year’s property tax bill). You would add 2% to this figure and compare it to the $300,000 market value figure. The lower amount is your taxable value for that year. You then pay taxes on the amount that results from multiplying your tax rate times that taxable value.
So if you purchased the above home last year for $200,000; this year's FBYV would be $204,000 ($200,000 + 2% for year 1). This means your taxable value would be $204,000; since that figure is lower than the $300,000 market value.
The following year, the FBYV of this home would be $208,080 ($204,000 + 2% for year 2). So that following year’s taxable value would be determined by comparing that $208,080 FBYV to the market value in that year.
NOTE: The FBYV does not change with the refinance of a home; it only changes with ownership transfers or certain other situations (like when permitted construction is performed).
Contact us if you have any questions on determining the taxes on your CA home...we’re here to help!
Information gathered from ocgov.com