This content was originally published by Keygent Managing Member, Chet Wang.
Assessed value (“AV”) is the dollar amount of taxable property within district boundaries on a county assessor’s roll.
What is taxable property?
Taxable property includes residential property such as single family homes, condos and apartments, and non-residential property such as commercial, industrial and agricultural properties. Certain types of property are excluded from AV such as government, nonprofits and churches.
Is AV the same as a property's market value?
AV is not the same as a property’s market value. Tax rates are levied against AV, not market values. Under Proposition 13 (which was approved in 1978), annual AV for a property cannot increase by more than the lesser of 2% or the California Consumer Price Index. If market values have increased at a higher rate than the Proposition 13 limits, then the AV will be lower than market values.
AV and market value examples
If you bought your home in 1978 for $100,000 and never sold it, 2017 AV would be $200,000 while the market value would be $600,000. If the same home were sold in 1998, the new homeowner’s AV would be the market value, in this example $300,000. The annual Proposition 13 growth limit would then apply such that the 2017 AV would be $400,000 while market value would be $600,000. If the same home were sold again in 2005, the new homeowner’s AV would be the market value, in this example $500,000. The annual Proposition 13 growth limit would then apply as in the prior examples. If market value falls below AV, Proposition 8 would kick in.
What is Proposition 8?
Proposition 8 (also approved in 1978), allows for a temporary reduction in AV when the market value is less than AV. The lesser of the market value or Proposition 13 value becomes the AV for that fiscal year. Proposition 8 properties may increase by more than 2% annually up to its Proposition 13 value (including annual adjustments).