Prop 8 Decline in Value is a supplement or exemption to Prop 13 which still applies today to all homeowners in California. Prop 13 was put into place in 1978 to control the amount of property taxes paid by property owners. Prop 8 Decline in Value is an exemption to Prop 13 which says that your assessed value should not be higher than market value for any given year. So, when the market is declining like it is today and has dipped below your current assessed value, you are entitled to some relief.

This appears to be good news however, it is only a TEMPORARY solution. Prop 8 is generally something you have to file for. The way Prop 8 Decline in Value works is like this, your valuation date for the current fiscal year is January 1st. So, the comparable sales for your residence for Prop 8 purposes, need to have closed within the first three months of the year; from January 1 to March 31 for that given year based on the language of the law. For example to get a Prop 8 Decline in Value reduction for 2009, the comparable sales must have closed between January 1st, 2009 and March 31, 2009 based on the law. Basically in order to get a reduction in value there has to be closed sales of similar properties within the first quarter of the designated year that are lower than your assessed value.

This is problematic for many reasons: one of the biggest 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.

The reason why this is not the best solution is that it is only a TEMPORARY reduction in value, as I stated earlier, so when the market starts to climb back up your old assessed value gets restored to what it would have been if it trended normally and you never had the reduction. Many alleged tax specialists pop up in declining markets often sending you mail claiming to be able to save you on property taxes. Unfortunately, homeownersoften pay good money to have their taxes lowered only to have their tax bills revert to higher rates once the market recovers. The truth is you never have to pay the Assessor for any service or review of your value – you pay for that service with your property taxes already!

Let me illustrate the way Prop 8 Reduction works on an average home in California. I bought a property 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 beginning of 2008 is around $430,000 and since I am a knowledgeable homeowner I apply for a Prop 8 Decline in Value to get a break. So, for 2008 I have a break, Im paying on a value that is $100,000 below my trended base value and saving around $1,250! The real estate market decreases and based on the Assessors review, the Prop 8 Decline value is given for 2009 also. 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 near $1,390! Awesome!

Well, the market starts to turn around, and the values are climbing and for 2010 my market value is around $500,000, so the Assessor’s Office adjusts my Prop 8 Decline value to $500,000 which is below my 2010 trended base value of $552,040. Definitely not as great as having $430,000 as my assessed value. However, I am still saving and this year since my Prop 8 Decline value is $52,000 lower than my trended base value I am now saving $650 a year in paid taxes. Well, for 2011 the market is skyrocketing gain and now my market value is somewhere around $600,000 and so the assessor restores my value to the trended base, which for this year is $563,080. So, I am now paying $7,038 in taxes. I wish I still had that $430,000 base

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

About the Author: Valerie Faltas, Property Tax Expert has been involved in all facets of real estate for over ten years including assessments, appraisals, estates and trusts, investing and much more. She is a Certified Property Tax Appraiser, Licensed Residential Appraiser and a member of the International Association of Assessment Officers. As a real estate investor and advisor she is well versed in all aspects of real estate. To contact Valerie Faltas go to her website: www.propertytaxlittleblackbook.com