California property taxes can be complex and challenging to understand. While the laws regarding property taxes apply statewide, the ways these issues are handled can differ from county to county. Understanding the specific requirements that apply to property owners can be difficult, and failure to follow the correct procedures could result in penalties. To address issues related to property tax assessments, payment of taxes that are due, and other related concerns, property owners will need to be aware of important dates and deadlines that apply throughout the year.

Dates Related to Property Taxes

• January 1: Lien Date - Anyone who owns taxable property on this date will be liable for the taxes that apply to that property. Property taxes are generally calculated as 1 percent of the assessed value of the property on the lien date.

• January 18: Homeowners' Exemption Claim Form - Certain owner-occupied homes will qualify for a $7,000 exemption toward the taxable value of the property, and this exemption can be claimed by making a one-time filing with the county assessor. Assessors are required to mail claim forms for the homeowners' exemption to new property owners by this date.

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In California, property taxes are a notoriously complex issue, and they may apply to both individual taxpayers and businesses. While property taxes will generally apply to real estate property owned by an individual, married couple, or business, they may also apply to other types of personal property. Specifically, assets that fall under the category of "business personal property" will need to be reported, and taxes may be applied to some of these assets. By understanding the requirements that apply to business personal property, owners of small businesses and other types of companies can make sure to avoid potential penalties.

What Is Business Personal Property?

Business personal property refers to the tangible assets owned by businesses and used to conduct their operations. This includes furniture, fixtures, equipment, and other miscellaneous items used by a business in its day-to-day operations. It also includes vehicles, aircraft, and boats, as well as supplies used by a business, such as office supplies, janitorial products, or fuel for vehicles. A business may also be required to pay taxes on personal property that has been leased and is used as part of its ongoing operations.

Real estate property is not included in business personal property. Inventory, such as products meant to be sold to consumers or parts used to make products, is considered business personal property, but it is exempt from property tax.

Homeowners in California will often be subject to high property taxes. However, the state’s laws do provide some benefits for property owners by limiting the amount that property taxes can be increased each year. When a home is bought or sold, a reassessment will be performed to determine the property taxes that will apply based on the home’s current market value. In certain cases, homeowners may be able to avoid a reassessment by transferring the value of their current home to a new property. A recent change in the law has affected when these “base year value transfers” may be performed.

Proposition 19 and Base Year Value Transfers

California’s Revenue and Taxation Code was amended in 2021 after the passage of Proposition 19. New provisions regarding base year value transfers went into effect on April 1, 2021. These included changes to who may perform these types of transfers and the time limits for doing so. 

A property’s factored base year value is determined based on the value of the property in 1975 or the last time a reassessment was performed due to a change in ownership or new construction. This amount may be increased by a maximum of 2% per year, and property taxes will be assessed based on this value. A person who performs a base year value transfer will be able to transfer the factored base year value of their current primary residence to a new primary residence. If the full cash value of the replacement residence is higher than the full cash value of the original property, the difference in these values will be added to the transferred base year value.

Tax laws in the United States change regularly at both the federal and state levels. In the 2020 election, California voters passed a ballot measure that made some changes to how property taxes are addressed when a person moves to a new home or transfers ownership of real estate property. Taxpayers will want to understand how this new law will affect them and what they can do to avoid tax increases.

Proposition 19 and Property Tax Reassessment

Under Proposition 13, which passed in 1978, property taxes in California are based on the purchase price of a property, and they are subject to small annual increases. When a property is sold or transferred to a new owner, property taxes are reassessed based on the market value of the property. However some homeowners have been allowed to transfer their property tax assessments to a new home. In addition, parents or grandparents could transfer a primary residence to their children or grandchildren without the need for reassessment, and they could transfer other types of property with the first $1 million in value being exempt from reassessment.

Proposition 19 has expanded some homeowners’ ability to transfer their tax assessment to a new home of an equal or lesser value. While this type of transfer was previously only allowed within the same county, a tax assessment will now be allowed to be transferred anywhere within the state of California. An assessment can also be transferred to a new home of a higher value while making adjustments to reflect this increase. Homeowners over the age of 55 were previously limited to one tax assessment transfer, but they will now be allowed to transfer a tax assessment up to three times.

In the face of receiving dramatic annual increases in property tax bills, in 1978, California voters passed Proposition 13, which has limited the rate of property tax increases for the past 40 years, so long as certain criteria are met. 

About Prop. 13

Prop. 13 limits property tax increases to 1 percent of the property’s assessed value. Assessed value cannot be increased more than 2 percent per year. Prop. 13 also provides that property taxes may include any bond payments or special assessments as approved by voters. All special assessments must receive a two-thirds vote. Importantly, a key provision of Prop. 13 for tax planning purposes is that properties will only be reassessed after an ownership transfer or if substantial improvements have been made to the property.

Efforts to Change Prop. 13

Recently, the voters of California rejected an effort to expand protections for property owners as set forth in Proposition 5. Prop. 5 would have allowed some homeowners to take lower property taxes with them when moving.