Why Your California Property Taxes Are So Low — Thank Proposition 13
Few California laws have had as much impact on real estate as Proposition 13. Passed by voters in 1978, it fundamentally reshaped the state’s property tax system and continues to influence homeownership today.
Whether you’re a long-time homeowner, a first-time buyer, or planning to sell, understanding Proposition 13 is essential for making informed financial decisions.
What Is Proposition 13?
Proposition 13, officially the “People’s Initiative to Limit Property Taxation,” amended the California Constitution to limit how property taxes are calculated and when properties can be reassessed.
Key elements include:
1% Tax Cap: General property taxes are capped at 1% of a property’s assessed value (plus any voter-approved local assessments).
Base-Year Value: A property’s assessed value is set when it is purchased or newly constructed.
Annual Increases: Assessed values can only increase by a maximum of 2% per year, regardless of market conditions.
When Does Reassessment Happen?
Under Prop 13, reassessment to full market value occurs only when:
The property changes ownership.
New construction or major improvements are completed.
Otherwise, taxes remain based on the original purchase price, adjusted by up to 2% annually.
Why Proposition 13 Matters
For Homeowners: Predictable property taxes make it easier to budget long-term, even as home values soar.
For Buyers: Taxes are based on the purchase price, meaning new buyers may pay significantly more than neighbors who bought decades earlier.
For Sellers: Prop 13 can create “lock-in” effects, where homeowners hesitate to sell because moving would reset their tax base.
For Cities & Counties: Local governments sometimes struggle with limited tax revenue growth, influencing public services and infrastructure funding.
Key Benefits of Proposition 13
Protects long-term homeowners from being taxed out of their homes.
Provides stability in property tax bills.
Encourages community continuity by reducing turnover.
Criticisms of Proposition 13
Creates inequities between new buyers and long-term owners.
Limits funding for schools and local services.
Discourages mobility, as homeowners resist moving to avoid higher taxes.
Recent Updates: Proposition 19
In 2020, California voters passed Proposition 19, which adjusted some Prop 13 rules:
Homeowners 55+, disabled, or wildfire/disaster victims can transfer their low tax base to a new home (up to 3 times statewide).
Inherited properties used as primary residences may keep their low tax base, but investment properties no longer automatically qualify.
Conclusion
Proposition 13 remains one of California’s most influential real estate laws. It keeps property taxes stable for homeowners but also creates challenges for buyers, sellers, and local governments.
Whether you’re planning to buy, sell, or simply stay put, knowing how Prop 13 works—and how it interacts with newer laws like Prop 19—is crucial for making smart housing decisions.