Sometimes the market value of a property falls below its Proposition 13 value. Proposition 8 addresses these declines by allowing the Assessor to reduce the assessed value of your property by enrolling a value that reflects this temporary decline in fair market value. Once reduced, your property's value must be reviewed on January 1 each year to compare its current market value to its Proposition 13 value, then enrolling the lower of the two. Proposition 8 values can change from year to year as the market fluctuates. While your Proposition 13 value may increase a maximum of 2% per year, there is no such limitation on the Proposition 8 value. Consequently, your new assessed value may have risen more than 2% over last year's value. However, your assessment can never exceed your factored base year value under Proposition 13. Once the market value exceeds the Proposition 13 value, the Assessor will restore the Proposition 13 value as the assessed value.
The graphs below illustrate market value (blue line) and Proposition 13 (red line) values. Values used are for illustrative purposes and not a forecast of future or current market conditions.
Year 1 - $400,000 purchase price (market value) enrolled as assessed value.
Year 2 - Even though the market value of the house has dramatically increased within the first year, $408,000 assessed value is enrolled under Proposition 13.
Years 3-6 - $365,000, $355,000, $375,000, and $420,000 are respectively enrolled as the assessed value under Proposition 8.
Year 7 - The Proposition 13 value is reinstated as the assessed value. Though the market value is at $500,000, the Assessor may only enroll the original value ($400,000) plus 2% for every year after the base year was established; roughly $450,000.
Unlike the first example, the market value in this example below never drops below the assessed value under Proposition 13. No adjustment is warranted.