This graphic shows the value of a hypothetical home over time to demonstrate how different transactions and changes to a property affect a property owner’s tax bill. LAO California’s Tax System ❘ Property Tax 1978: Proposition 13 Proposition 13 (1978) requires a home’s assessed value to be based on its purchase price, increased by up to 2 percent per year for inflation. Whenever it is sold, it is again taxed at its purchase price. Proposition 13 also rolled back assessed values to their 1975 levels. 1970: Home Purchased From 1970 to 1977 the home is taxed based on its market value. 1985: Bedroom Added The addition of a bedroom increases the home’s assessed value to reflect the added market value of the bedroom. 2005: Home Sold The home is sold and reassessed to market value, significantly increasing the tax bill. 2014: Recovery The home’s market value recovers and it is again taxed at its inflation- adjusted purchase price. 1988: Transfer to Child A property transfer typically triggers a reassessment. However, Proposition 58 (1986) allows the home to transfer from the owner to the child without a reassessment to market value. 2008: Decline in Value The home’s market value dips below its inflation-adjusted purchase price. Proposition 8 (1978) allows the home to be temporarily assessed based on its market value instead. Market Value The price the home could be sold for. Assessed Value The basis of the property owner’s tax bill. 2018 ANNUAL REPORT 9 THE LIFE OF A HOUSE