Filing Appeals To Reduce Property Taxes When Values Drop
Thanks to Proposition 13, enacted by California voters in the mid – 1970’s, property taxes are limited to 1 percent of the assessed value (plus any bond debt), and assessors are only allowed to increase values by no more than 2 percent per year (see below for exception), unless an increase is unwarranted — as we are seeing in today’s housing market.
When the housing market slumped in the recession that hit in the early ’90s, property owners generally had to take matters into their own hands and file appeals. With this recession starting about 2007, however, county assessors seem to be taking a proactive approach by reviewing parcels and reducing assessed values before they mail property tax bills. However, it is impossible for county assessors accurately to review every assessment in their counties.
Requesting A Reduction
Property owners who believe their property is overvalued can seek a reappraisal from their local county assessor’s office. They may not need to file a formal appeal if they talk with their assessor’s office first. The assessor’s office can explain how they determined the value and review any additional information provided. If the assessor’s office agrees with the owner’s documentation, they may be able to reduce the assessed value of the property.
If the property owner still disagrees with the assessed value, then he or she must file an appeal.
CAUTION: A few private firms are mass mailing homeowners in high-impact areas with offers to file appeals on their behalf. There is, of course, a fee.
Taxpayers may file an appeal with their local clerk of the board.
NOTE: Property owners must pay assessed property taxes on time — even if they have filed an appeal.
The regular filing period for property tax appeals is different for some counties, so you should check with them.
If you have purchased property in the past three years review your property tax assessments.
Ups And Downs
Under Proposition 13, a base year value is established when a property changes ownership or is newly constructed. A base year value may not be increased more than 2 percent per year, and sometimes — as we are seeing with the current recession — the market value of a property on the January 1 lien date has fallen below the adjusted base year value.
Assessors must enroll the lesser of the adjusted base year value or market value. This is generally referred to as a “Proposition 8” assessment.
A property assessed under Proposition 8 is not restricted to the 2 percent increase. Consider a property where the value increased 10 percent since the prior lien date but the value is still below the Proposition 13 adjusted base year value; the assessor will use the new increased Proposition 8 value. In this case, the property owner will see a 10 percent increase in the assessed value over the prior year. We will likely see value increases higher than 2 percent when the housing market bounces back.
EXAMPLE 1: Prop 8 Decline
Joe purchased his home in 2014 for $500,000. On January 1, 2015, the market value of the home was $550,000. Under Proposition 13, however, the increase in his base-year value was limited to 2 percent. So, for the 2015-2016 roll his assessed value was $510,000.
In January of 2017, the market value of his home has dropped to $450,000. As a result, his county assessor dropped the assessed value of his home to $450,000.
In January 0f 2018, if the market value of his home increases to $495,000, so will the assessed value for property tax purposes.
Common Types Of Appeals And Deadlines
To appeal the value of property, you must file Form BOE-305-AH Application for Changed Assessment, with the clerk of local assessment appeals board. The application deadline depends on the type of appeal being filed (see the chart on page 3). The four most common types of appeals and their filing deadlines include: decline-in-value appeals, base year value appeals, calamity reassessment appeals, and roll changes or escape assessment appeals.
Decline-in-value appeals — Taxpayers who feel the market value of their property has decreased and is no longer as high as its assessed value can file a decline-in-value appeal for the current year.
A decline-in-value appeal must be based on the market value of the property as of January 1 of the year in which the appeal is being filed. For example, if a taxpayer files an appeal in 2015, the appeal must be based on the market value of the property as of January 1, 2015. An application must be filed for each year that the property owner disagrees with the assessor’s value, even if there is a decline-in-value appeal pending for a prior year.
Base year value appeals — In this type of appeal, the property may have been reassessed because of: (1) a change in ownership (for example, the purchase of a new home); or (2) completion of new construction (for example, adding a bedroom).
In either of these cases, the taxpayer should have received a supplemental assessment notice showing a new base year value for the property. A supplemental assessment reflects the market value before the property is placed on the regular tax rolls.
Taxpayers can appeal to have the value changed if they disagree with the assessor’s value, or can appeal to have the reassessment reversed if they believe there was no change in ownership or there was no new construction that required reassessment. One of the most common base-year value appeals, arguing that there was no change in ownership, is when one legal entity transfers property to a related legal entity.
EXAMPLE 2: Appealing Base Year Value
In 2005, Homer Pair received a supplemental assessment for a home he purchased in 2004. The property’s new value became part of the regular assessment roll for the 2005-06 lien year.
In 2008, Homer realized that he missed the 60-day deadline to appeal the supplemental assessment. Homer can still file an appeal during the regular appeal period for the base year value reflected in his 2008-09 property tax bill.
If he succeeds in his appeal, the assessor will change the base year value set in 2004 and add the annual inflation factor (not to exceed 2 percent) for each year up to 2008-09. Homer’s 2008-09 property taxes will based on the new value. However, Homer is not allowed any refunds for the prior years.
Homer will be allowed a refund for his 2008-09 property taxes if he already paid them.
Calamity reassessment appeals — If the county assessor mailed a reassessment notice to a taxpayer because of a natural disaster or other calamity that damaged the taxpayer’s property, and the taxpayer disagrees with the proposed value, the taxpayer must file an appeal within six months of the mailing of the notice.
Roll-changes or escape assessment appeals — Roll changes or escape assessments are generally assessments for events that happened in prior years, but were not discovered timely by the assessor. For example, assume a taxpayer built a swimming pool in September 2014 but the assessor did not assess the value of the pool until May 2016.
An appeal can be filed by the property owner or the owner’s spouse, registered domestic partner, parents, children, or any person directly responsible for payment of the property taxes. An appeal may also be filed by the authorized agent of the property taxpayer. If an application is filed by an agent — other than a California licensed attorney — written authorization, signed by the property taxpayer, is required.
If a taxpayer and assessor reach an agreement regarding the value of the property after a taxpayer has filed an appeal, the agreement must be put in writing and signed by all parties, including the applicant or authorized agent, the county assessor, and the county legal officer. The written agreement will be submitted by the assessor to the appeals board, which can accept or reject the agreement. If the agreement is rejected, a hearing will be scheduled.
Taxpayers must file a separate application for each parcel of property and must continue to pay their property taxes on time, despite any pending appeal. Failure to pay the property taxes exposes the taxpayer to penalties and interest regardless of the final outcome of the appeal.
Further Appeal Rights
Taxpayers who want to challenge the appeals board’s decision must file a claim for refund with their board of supervisors, unless they’ve already made their appeal application for a claim for refund. Their next step is to file an action in Superior Court.
Transfers that are not changes in ownership:
Parent/Child transfers — If there was a change in ownership because of a parent-to-child or grandparent-to-grandchild transfer, the taxpayer must file with the county assessor a specific form, Claim for Reassessment Exclusion for Transfer Between Parent and Child, or the form Claim for Reassessment Exclusion for Transfer Between Grandparent and Grandchild, in order to receive an exclusion from change in ownership.
Registered Domestic Partners (RDP) transfers — If there was a change in ownership because of a transfer between RDPs, the taxpayer must file a specific form, Claim for Reassessment Reversal for RDPs, in order to receive an exclusion from change in ownership.
60/90/110 transfers — If there was an increase in base year value because the transfer was a Proposition 60 or 90 transfer, then the taxpayer must file the form, Claim of Person(s) at Least 55 Years of Age for Transfer of Base Year Value to Replacement Dwelling, with the county assessor where the replacement property is located in order to transfer the base year value from the taxpayer’s original property. For Proposition 110 transfers, the taxpayer must file form, The Disabled Persons Claim for Transfer of Base Year Value to Replacement Dwelling.