California's property tax system is uniquely shaped by two landmark voter initiatives: Proposition 13 (1978) and Proposition 19 (2021). Understanding both is essential for the CA real estate license exam and for advising buyers and sellers effectively.
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Proposition 13 was a constitutional amendment (Article XIII A) passed by California voters in June 1978. It fundamentally restructured property taxation in the state:
Key provisions: 1. Property tax rate cap: Property taxes cannot exceed 1% of the assessed value per year (plus any voter-approved bonds or special assessments, which can add 0.1–0.5% or more) 2. Assessment base year: When Proposition 13 passed, properties were assessed at their 1975 fair market value. For new purchases, the base year value is set at the purchase price at the time of acquisition 3. Annual increase cap: The assessed value can increase by no more than 2% per year or the rate of inflation (as measured by the California Consumer Price Index), whichever is less 4. Reassessment triggers: The assessed value is only reassessed to current market value upon: - A change of ownership (sale, gift, inheritance with some exceptions) - New construction (only the new construction portion is reassessed; existing structure retains its base year value)
Example: A homeowner purchased a home in 1990 for $300,000. Under Prop 13, the assessed value started at $300,000 and grew at a maximum of 2% per year. In 2025 (35 years later), the assessed value might be approximately $600,000 even if the market value is $2,000,000. Annual tax: $600,000 × 1% = $6,000. Without Prop 13, the tax on the market value would be $20,000.
Impact on real estate: Long-term homeowners have a significant "lock-in effect" — they pay much lower property taxes than a new buyer would. This discourages moving, contributing to California's housing supply constraints.
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When a property changes ownership, the county assessor reassesses the property at the new purchase price. The difference between the old assessed value and the new assessed value creates a supplemental tax bill.
The supplemental bill covers the period from the date of acquisition to the end of the fiscal year (June 30). If the purchase occurs after January 1, two supplemental bills may be issued (for the current and following fiscal year).
Example: Buyer closes on a $1,200,000 home on April 1. Prior assessed value was $400,000. New assessed value = $1,200,000. Annual additional tax = $800,000 × 1% = $8,000. Supplemental bill covers April 1 – June 30 (3 months) = approximately $2,000.
Buyers should be warned about supplemental tax bills — they arrive 6–12 months after purchase and surprise many first-time buyers.
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| Installment | Covers | Due Date | Delinquent If Not Paid By | |---|---|---|---| | 1st installment | July 1 – December 31 | November 1 | December 10 | | 2nd installment | January 1 – June 30 | February 1 | April 10 |
Memory device: "No Darn Fooling Around" — November Due, December delinquent; February Due, April delinquent (No = November, D = December, F = February, A = April).
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The base year value is the assessed value established at the time of acquisition. It becomes the starting point for future 2% annual adjustments. Understanding base year value is critical when:
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Proposition 19 (effective February 16, 2021) significantly changed the rules for two types of property tax benefits that previously existed under Propositions 58 and 60/90.
Old rule (Prop 58): Parents could transfer any real property to children without reassessment, regardless of whether the child lived there or how many properties were transferred.
New rule (Prop 19): Parent-child transfers without reassessment are now limited to the family home (principal residence), and only if the child occupies the home as their principal residence within 1 year of transfer.
Additionally, if the market value exceeds the parent's assessed value by more than $1,000,000, the excess over $1,000,000 is added to the parent's base year value to create the child's new assessed value.
Example: Parent's home has a $400,000 assessed value but $1,800,000 market value. Child inherits and moves in. Excess over $1,000,000 = $1,800,000 - $400,000 - $1,000,000 = $400,000 above the exclusion. Child's new assessed value = $400,000 (parent's base) + $400,000 (excess) = $800,000.
Investment properties and vacation homes: No longer exempt from reassessment under Prop 19.
Old rule (Props 60/90): Homeowners 55 and older could transfer their base year value to a replacement home of equal or lesser value, one time, within the same county (Prop 60) or to certain other counties (Prop 90 — limited participating counties).
New rule (Prop 19): Homeowners 55+, severely disabled, or victims of wildfire/natural disasters can transfer their base year value to a replacement home:
Example: Homeowner 57 years old has a $250,000 base year value on their current home (market $1,500,000). They sell and buy a $2,000,000 replacement home anywhere in California. New assessed value = $250,000 (old base) + ($2,000,000 - $1,500,000) = $250,000 + $500,000 = $750,000.
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Homeowner's Exemption: Available to California homeowners who occupy their home as a principal residence as of January 1. The exemption reduces the assessed value by $7,000, resulting in approximately $70 in annual tax savings. Small but easy to claim.
Disabled Veterans Exemption: A more generous exemption for qualifying disabled veterans; can reduce assessed value by $100,000+ depending on income and disability rating.
Senior Citizens Property Tax Postponement: Allows qualifying low-income seniors to defer property tax payments until the property is sold or the senior passes away.
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Quiz Questions:
Q1. Under Proposition 13, what triggers a reassessment of a California property to its current market value?
A) A refinance of the existing mortgage B) The property's market value increasing more than 2% in one year C) A change of ownership (sale or transfer) or new construction D) The owner reaching age 65
Answer: C — Under Prop 13, a property is reassessed to current market value only upon a change of ownership (sale, gift, inheritance with exceptions) or completion of new construction. Refinancing, market appreciation, and age changes do NOT trigger reassessment. The 2% annual cap applies between reassessment events.
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Q2. A homeowner purchased their California home in 1985 for $200,000. Under Prop 13, if the assessed value grew at the maximum 2% per year for 40 years, what is the approximate assessed value today?
A) $200,000 (no change allowed) B) $300,000 C) $440,000 D) $600,000
Answer: C — $200,000 × (1.02)^40 ≈ $200,000 × 2.208 = approximately $441,000. This would be the assessed value cap, even if the property's market value is $2,000,000 or more. The actual tax would be approximately $4,410/year vs. potentially $20,000+ if taxed at market value.
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Q3. Under Proposition 19, a parent who purchased a home for $100,000 (now assessed at $200,000) leaves it to their child in their will. The home's current market value is $1,600,000. The child moves in within 1 year. What is the child's new assessed value?
A) $200,000 (full parent-child exclusion, no reassessment) B) $1,600,000 (fully reassessed to market value) C) $600,000 (parent's $200,000 base + $400,000 excess above $1,000,000 differential) D) $1,000,000 flat
Answer: C — Under Prop 19, the exclusion applies to the first $1,000,000 above the parent's assessed value. The excess market value above that is taxable. Market value ($1,600,000) - Parent's base ($200,000) = $1,400,000 differential. Amount over $1,000,000 = $400,000. Child's new base = $200,000 + $400,000 = $600,000.
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Q4. A 59-year-old homeowner with a $180,000 base year value wants to sell their Los Angeles home and buy a replacement home in San Francisco County under Proposition 19. Is this allowed, and how many times may they do this?
A) Not allowed — Prop 19 portability only works within the same county B) Allowed statewide; up to 3 times C) Allowed statewide; but only once D) Not allowed — the homeowner is not old enough; must be 62+
Answer: B — Proposition 19 allows qualifying homeowners age 55+ to transfer their property tax base year value to any replacement home anywhere in California, up to 3 times. The age threshold is 55 (not 62). The statewide portability and 3-use limit are the key improvements over the old Props 60/90.
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Q5. California property taxes for the first installment are due on November 1. What is the last day a property owner can pay without a penalty?
A) November 1 B) November 30 C) December 10 D) December 31
Answer: C — The first installment is due November 1 but does not become delinquent until December 10. Payments made by December 10 incur no penalty. After December 10, a 10% penalty is added. The memory device is "No Darn Fooling Around": November Due, December Delinquent (for 1st installment).