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Sunday, June 22, 2008

Property Taxes Falling

by Calculated Risk on 6/22/2008 05:13:00 PM

From the LA Times: Tax cushion for falling property values

Assessors in the five-county Los Angeles area are now in the process of cutting property taxes on more than half a million homes because of plunging home values. ...

Although savings will vary widely, the average annual property tax reduction in Los Angeles County is expected to be about $750. In Riverside County, it'll be around $1,200.
In California, the assessed value is set to the sales price (in most cases), and then the assessed value is limited to a maximum increase of 2% per year. Property taxes are 1% of the assessed value.

Homeowners who bought years ago will still see their property taxes increase 2% per year (since the assessed value is still below the market value). However for recent home buyers, with falling prices, the market value will likely be below the purchase price. These homeowners can appeal the assessment value - or as in this case, the assessors office may reduce the assessed value automatically.

A decline of $1,200 per year in Riverside suggests assessed values have fallen $120,000 on average.
Those tax breaks will go only to selected homeowners who bought their homes around the market's peak in 2005 and 2006. The Los Angeles County Assessor's office, for example, reviewed only properties purchased since July 1, 2004, and will be lowering taxes on 128,000 out of the 318,000 examined.

Assessors in Orange, Riverside, San Bernardino and Ventura counties reviewed sales since Jan. 1, 2004, and say they expect to reduce taxes on about two-thirds of those homes.
This is both good news and bad news for homeowners. Imagine opening a letter from the assessors office saying your property taxes have decreased $1,200 per year - but that the value of your home has declined $120,000. Ouch!

My guess is the assessors office will have to review sales back to 2003 or even 2002 next year.