How Are California Property Taxes Calculated?

California’s property tax system is primarily influenced by Proposition 13, a constitutional amendment passed by voters in 1978. This framework fundamentally shapes how property values are assessed and how taxes are calculated, providing predictability for property owners.

Establishing the Base Year Value

The foundation of California’s property tax calculation lies in the “base year value.” This value is established when a property undergoes a change of ownership or new construction is completed. It is set at the fair market value of the property at that time. For properties that have not changed ownership since 1975, their base year value was set to the 1975 assessed value.

This base year value becomes the benchmark for future property tax assessments. The sale price of a property is presumed to be its market value. This system means properties with similar current market values may have vastly different assessed values for tax purposes, depending on when they last changed ownership.

Annual Value Adjustments

Once a base year value is established, it is subject to limited annual adjustments. Proposition 13 restricts the annual increase in a property’s assessed value to a maximum of 2% or the California Consumer Price Index (CPI), whichever is lower. This adjustment is applied to the “factored base year value,” which is the original base year value plus annual inflation adjustments.

This cap on annual increases means the assessed value for property tax purposes grows slower than the property’s market value, especially during significant market appreciation. The 2% limit continues to apply each year unless a change in ownership or new construction occurs.

Supplemental Assessments and Reassessment Triggers

A property’s base year value is reassessed to its current fair market value when there is a change in ownership or new construction. These events trigger a new base year value for the property or its newly constructed portion, which can impact the property tax bill as the assessed value jumps to market value.

When a change in ownership or new construction occurs mid-year, a “supplemental assessment” is generated. This assessment accounts for the difference between the old and new assessed values for the remaining portion of the tax year. It results in a separate tax bill, distinct from the annual property tax bill. For example, if a property is purchased in March, a supplemental bill covers the period from March through June, reflecting the new assessed value.

Applying the Tax Rate and Additional Levies

The actual property tax amount is calculated by applying a tax rate to the assessed value. Proposition 13 caps the general ad valorem property tax rate at 1% of the assessed value. This 1% is the largest component of most property owners’ annual tax bills.

Beyond this 1% general levy, property tax bills can include additional voter-approved local taxes and special assessments. These levies fund specific local services or infrastructure projects, such as school bonds, park improvements, or public safety initiatives. These charges are not subject to the 1% Proposition 13 cap and can vary considerably by location. Examples include Mello-Roos Community Facilities Districts, which finance public works and services in specific areas, often in newer developments. Mello-Roos taxes are levied annually as a lien against the property.

Common Exemptions and Exclusions

Several exemptions and exclusions can reduce a property owner’s tax liability or prevent a reassessment. The Homeowner’s Exemption provides a $7,000 reduction in assessed value for owner-occupied primary residences. This exemption can result in an annual property tax savings of approximately $70 to $80. To claim this exemption, homeowners must file a one-time application with their county assessor.

Exclusions from reassessment prevent a change of ownership from triggering a new base year value. The parent-child and grandparent-grandchild exclusions (Propositions 58 and 193) allowed for transfers of real property between family members without reassessment under certain conditions, notably prior to February 16, 2021. Proposition 19, effective February 16, 2021, altered these intergenerational transfer rules, requiring the transferred principal residence to remain the principal residence of the child or grandchild to qualify for partial or full exclusion. Additionally, the Disabled Veterans’ Exemption provides a reduction in assessed value for qualifying disabled veterans or their unmarried surviving spouses, with two levels of exemption based on income.