M is for Money

Recently there was a small silver lining for me in the Great Housing Crash, my property taxes were reduced. It’s a teeny, tiny comfort for this underwater homeowner. When I bought in 2005 the housing market was red hot and it seemed like the sky was the limit for prices. In fact it didn’t slow down until 2007, but those two years of gains were no cushion for me. Housing prices in LA have dived and continue to drop as the economy stumbles along. The local tax assessor looked at all properties purchased since July 1, 2003 and reduced the assessed value on 333,000 homes (roughly 70% of the ones they reviewed).

A Primer on California Property Taxes

Out of state readers may wonder why only houses purchased since 2003 were reviewed, after all didn’t values skyrocket for everyone? During the bubble years there were many tales of homeowners shocked by huge property tax bills after the “value” of their home suddenly increased. But that didn’t happen here due to a law called Proposition 13.

California has experienced housing booms before, one of which resulted in a taxpayers revolt. The voters passed Prop 13 which limited property tax increases to no more than 2% per year (yes below inflation - that has a lot of consequences the authors never considered). Hence many homeowners, especially long term owners, are paying taxes on a value still well below the current market. For many of them, prices will never fall low enough to trigger a review.

My Tax Reduction

I received a letter in the mail letting me know that their review led to a reduction in my assessed value, but they call it a temporary reduction only. If prices shoot back up tomorrow, my old value will kick in rather than the lower value + 2%. Bummer. Also, the assessor agrees that I’m underwater, my new assessed value is less than what I owe in the house. Here are the numbers:

Value per Prop 13 - $373,000
Assessed Value - $287,000

That’s a 1-year drop of $86,000 and an annual tax reduction of $1100. In the context of my monthly payment, it’s peanuts. I mean the extra money is nice, but it doesn’t make much of a difference in our finances. I plan to keep setting aside the same amount each month (I self escrow) and use the excess towards home repairs.

Get Your Own Reduction

Every community has a process for reviewing property assessments, and some are less active in pursuing a reduction for you. If you feel your appraised value is too high, you can file an appeal. Check with your local assessor for information on the process and how to file. You will need proof of your claim, like data on recent sales in your neighborhood or an independent appraisal. It would be worth spending a few hundred dollars on one if it means a savings of several thousand on your taxes. If I did not get an automatic reduction this year I planned to file an appeal myself. Many of us homeowners have been hard hit by the housing collapse, paying taxes on an over-inflated price only increases that pain.


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