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State ruling to cut most property taxes

December 5th, 2009 9:03 AM by Lehel S.

State ruling to cut most property taxes

State officials say that property taxes will probably fall for most California property owners next year due to deflation, the first such property tax cut since Prop. 13 took effect three decades ago.

While the average tax cuts would be small – just $7 for a home assessed at $250,000 – the reductions likely will cut revenue for cities, counties and schools by hundreds of millions of dollars. The cuts would affect tax payments due in December 2010 and April 2011.

“There will be a slight decrease,” said Anita Gore, spokeswoman for the state Bureau of Equalization. “But it’s not an increase, and it’s the first time that’s happened.”

Under Prop. 13, property tax hikes for existing owners are based on the overall inflation rate, but capped at 2% a year. It’s been a rarity when the tax rise isn’t at 2%. State officials set that inflation rate at less than 2% just five times in the past 31 years.

“But it’s never been negative,” Gore said. Highlights of the state announcement include:

  • State Bureau of Equalization officials issued preliminary estimates Monday that California will have a negative inflation factor, or deflation, of 0.237%.
  • Bureau staff determined that tax assessments must be lowered in deflationary times – even for longtime owners with tax assessments well below their property’s market value.
  • With deflation at roughly a quarter of a percent, the cuts amount to around $2.60 per $100,000 of assessed valuation.
  • State officials calculated that a home assessed at $250,000 would see only about $7 shaved off next year’s tax bill. Under a 2% inflation rate, however, that tax bill likely would go up $55.
  • The tax savings is a reversal of inflationary times, when property taxes for longtime owners can rise even as property values fall. That’s because the 2% cap keeps their “assessed value” well below actual values.
  • However, taxes still can rise for property owners who recently purchased homes or buildings, then got their taxes reduced due to falling values, officials said.
  • If, for example, property values for recent buyers increased from January 2009 to January 2010, their property tax assessment will go up if the value is still below their purchase prices.

The state ruling is preliminary since it was derived from the federal government’s Consumer Price Index. The state will calculate its own inflation rate, called the California Consumer Price Index, then notify county assessors later this month.

Posted in:General
Posted by Lehel S. on December 5th, 2009 9:03 AM

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