Increases in taxable value are limited by Proposition 13. Proposition 13 sets a yearly limit on just how much your taxable value can increase during the time you own your home. Your taxable value is increased every year to adjust for inflation, but the Prop. 13 adjustment cannot exceed 2% per year. Think of it this way:

Let's say you bought a home several years ago for $100,000. The Assessor determined that the purchase price was the fair market value, so the base year value of the property was set at $100,000.

Over the next year, real estate values increased by 10% and you could sell your home for $110,000. That's good, you acquired $10,000 in equity. Even though the market value increased by 10%, because of the limits set by Prop. 13, the factored base year value could only increase 2% to $102,000. The Assessor compares the market value to the factored base year value, and enrolls the lower of the two. The taxable value is $102,000.

The real estate market continued to grow, and property values in Orange County increased another 10% the following year. Last year you could have sold your home for $110,000, this year you could sell it for $11,000 more, or $121,000. But your Prop. 13 factored base year value was considerably less. Last year's value of $102,000 plus 2% gives you a new factored base year value of $104,040. The Assessor again compares the two values, and enrolls the lowest one. This year's taxable value is $104,040.

You can see in this example, after 2 years the difference between the market value and the taxable value is $16,960! Proposition 13 protected you from unpredictable increases in property taxes because the taxable value was based on factored base year value, not market value.

But what happens if the market value goes down? Proposition 8 allows the Assessor to temporarily reduce the taxable value of property if the market value is lower than the factored base year value. This is exactly what happened a few years ago to many property owners in Orange County. As a result the Assessor temporarily reduced the taxable value of over 330,000 parcels.

Let's go back to our example and say the market dropped 20%, and you could only sell your home for $96,800. At the same time, the last factored base year value of $104,040 is increased by 2% to $106,120. The Assessor compares the two values and sees that the market value is lower. The property receives a temporary reduction because of Prop. 8, and the taxable value drops from $104,040 to $96,800.

Now that the real estate market has rebounded, market values of many properties are once again higher than their factored base year values. As a result, the Assessor is returning many parcels to the value limits set by Prop. 13. That means that if you received a temporary reduction in the past few years, you could see what looks like a greater than 2% increase in the taxable value this year.

Here's what's happening; the temporary relief that Prop. 8 gave you due to the depressed real estate market is now over and the taxable value is returning to the limits set by Prop. 13. In many cases, the taxable value is still much lower than the current market value of the property.

Back to our example, suppose the market jumps 30% in one year and you could sell your home for $125,840. The factored base year value is increased by 2% from $106,120 to $108,242. Now the factored base year value is lower than the market value, so the Assessor enrolls a taxable value of $108,242. Your taxable value goes up from $96,800 last year to $108,242 this year. You are again receiving the benefits of Prop. 13, and your taxable value is $17,598 lower than the market value.

Can the Assessor increase your taxable value more than 2% in one year? Yes, your taxable value can go up more than 2% in one year if you received a temporary Prop. 8 reduction in the past, but it cannot go higher than the factored base year value which was limited to increases of 2% per year.

Your situation may be different, and the Assessor's staff is ready to help you understand the taxable value of your property. If you have any questions, or think that the market value of your home is lower than the new taxable value on the value notice mailed in July, please call the Assessor Department at (714) 834-2727.