The Tax Man Cometh

by Doug Love

Here in California, we launched over the “Fiscal Cliff” back in 1978, according to Proposition 13 haters. Proposition 13 froze real estate property taxes with a “two percent rule”- a limit for increases of no more than two percent per year. Millions and billions of dollars were lost from tax revenue, and the state has been scrambling and scratching for cash ever since.

Real estate property owners have been happy with the law. “Hands off, Mr. Tax Man;” they say, “stay out of my pockets when it comes to my property.”

Naturally, Mr. Tax man has been frustrated with Proposition 13, because real estate was the go-to place to find money back in the day. A little tax-raise here; a little tax-raise there, and presto! – A balanced budget. But no more, thanks to Proposition 13- find your money elsewhere, Tax Man.

Property owners have another benefit when it comes to taxes. When real estate values drop, the Tax Man can lower property taxes to match. In fact, he’s obligated to lower them, particularly if property owners appeal to the Assessor’s office and prove their property values have dropped significantly.

Frank Milo, for instance, bought his house in 2004 for $350,000. Four years later the value dropped to $250,000. “Hey,” he said, “I’m sitting here paying taxes on this turkey at $4,200 a year. If my house is only worth $250,000 now, my taxes should be $3,000 a year. That’s a hundred bucks a month I’m throwing down a rat-hole! No fair!”

Frank made an appeal to the Assessor’s office, had his property’s assessed value lowered to $250,000, and his tax bill lowered to $3,000 a year- he’s saving a hundred bucks a month.

But there’s a catch. When property values go back up, as they are now……… You guessed it- Mr. Tax Man can ignore the 2 percent rule for properties he lowered, and raise those taxes right back up.

Mr. Tax Man is twirling his moustache right now, raising values he was forced to lower, and sending out new tax bills. Frank Milo got his, and he’s not a happy camper. “My pay at work sure hasn’t gone up, but now my taxes are,” he said.

Beware. The Tax Man cometh.