In 1978, California voters passed Proposition 8, a constitutional amendment to Article XIII A that allows a temporary reduction in assessed value when real property suffers a decline in value. A decline in value occurs when the current market value of real property is less than the current assessed (taxable) factored base year value as of the lien date, January 1. Proposition 8 is codified by section 51(a)(2) of the Revenue and Taxation Code.
Real property may decline in market value from one lien date to the next lien date; however, it will not benefit from a lower assessment unless its market value falls below the current factored base year value. For example, if you purchase your property during a time when the real estate market falls dramatically, or if your property is substantially damaged due to a storm or fire that causes a reduction in your property’s value, it is likely that your property will benefit from a Proposition 8 reassessment. The decline in value is typically temporary and may be the result of changes in the real estate market, the neighborhood, or the property itself.
When the market value of a property on the January 1 lien date falls below the factored base year value (assessed value), the assessor is obligated to review the property and enroll the lesser of the factored base year value or market value. The factored base year value of real property is the market value as established in 1975 or as established when the property last changed ownership or when the property was newly constructed.
A property that has been reassessed under Proposition 8 is then reviewed annually to determine its lien date value. The assessed value of a property with a Proposition 8 value in place may increase each lien date (January 1) by more than the standard two percent maximum allowed for properties assessed under Proposition 13; however, unless there is a change in ownership or new construction, a property’s assessed value can never increase above its factored Proposition 13 base year value after adjusting for the annual increase.