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Reducing your property taxes

OK, so even the most unaware individual probably knows that for homeowners,  this last 12 months was not exactly a banner year for Riverside area real estate.  Not that Riverside, Moreno Valley, or Corona are being singled out for misbehavior.  On the contrary, this decline in housing values is certainly a State of California issue, as well for many parts of the entire country.  However, when we speak of Riverside County, the focus of this article will be the very small silver lining you may find regarding reducing your property taxes in a declining value market.

 Contrary to the many examples given to us on our evening news, sometimes government does have a heart, and in this case, we speak of the Riverside County Tax Assessor.  Specifically, your tax assessor has made it possible for you to have your property taxes reduced if your property value has dropped below what you paid for it (specifically called proposition 8).  It doesn’t matter if your property is your home, rental, land, or commercial…the county does not care.  The bottom line is that if you feel the value has fallen below what you originally paid for the property, then you can file a claim to have your property re-assessed and have the existing property taxes reduced if the County agrees your value is indeed lower.  Understand that this only applies if the current value is below what you paid for the property.  It doesn’t work if the value is simply lower than last year, but still above what you paid when you originally bought the property.  We will give you an example in a moment.

 To understand how this process works, you must first understand about Proposition 13 and how that determines your property taxes.  Proposition 13 was passed by the voters of California years ago, and essentially limits the property taxes to 1% of the sales price when the property is purchased.  That original sales price becomes the assessed price as well, and the assessed price can only be increased by a maximum of 2% per year after that.

 For example, if you purchased a home for $400,000, then that $400,000 would also become your base assessed value, and your property taxes for the first year would be 1% of $400,000, or $4,000.  On year two, your assessed value could rise by a maximum of 2% to $408,000, which could result in an increase of your annual property taxes to 1% of the new assessed value of $408,000…or annual property taxes in year two of $4,080.  Naturally, years 3-whenever work the same way.

 So, now we can discuss the mechanics of Proposition 8 and how it can potentially save you some money on your property taxes.

If, as in the example above, you purchased your home for $400,000, and now you feel it is worth less than your purchase price, you may file the appropriate paperwork with the assessor, and they will review your case, assign a new assessed value to your home, and perhaps that new (lower) value will mean a new lower property tax bill as well.  Once you have filed this form (called a Decline-in-Value Reassessment Application), you do not need to do it again every year.  On the contrary, your property will automatically be assessed every year to determine the current market value and assessed value.  If the value continues to decline, then your property taxes will continue to decline as well.

 So what happens when values begin to rise (and they will…this market is cyclical)?  Well, you property will continue to rise with the now increasing value, and your property taxes will rise as well.  How high can your assessed value go?  When your property is increasing in value, the assessed value can only rise to whatever level it would have achieved if you had never started this process.    In other words, you will not “lose” your base assessed value and it’s  2% annual increase. 

 In the $400,000 purchase price example above, the assessed values for years 1-5 would have been $400,000, $408,000, $416,160, $424,483, and $432,932 in year 5.  If you applied for a proposition 8 reduction, and got reduced rates for years 2 and 3, but then prices began rising again in year 4, no matter how much prices increased, your assessed value in year 5 could not be more than the $432,932 listed above. 

 In other words, you can have the benefit of the decreasing values and their accompanying lower property taxes without giving up any limitations on the upside.  How can you beat that?  Who says government is not about the people anymore!

 Lastly, the timing and dates for all this run exactly like your calendar year…which is very unusual for government.  The last day to file your paperwork for a proposition 8 reduction is December 31 of any given year.  For any additional information about this process, you can call (951) 955-6200, or visit their website at http://riverside.asrclkrec.com .

We at Westcoe Realtors Inc hope you have found this information useful, and please do not hesitate to contact us if you have any additional questions regarding any aspect of Real Estate.