Property Tax Dynamics and Proposition 13

This article from the Sac Bee makes an interesting point about residential property tax dynamics after a deep recession.   Let's see if I can get these details right.  Suppose that you purchased a California house for $600,000 in 2007.  Back in 2007, your property taxes would be roughly $6,000 per year and you knew that because of Prop 13 that they could only rise by 2% per year (so a mere $120) regardless of how much your home increased in value.

Now jump to 2011.  Suppose this same house is now worth $400,000.  Let's assume that the home's property taxes have been reduced to $4,000 per year.  The point of this article is that  as home prices start rising again (let's keep our fingers crossed) that property tax increases will not be capped by Prop 13.  For example, suppose this home's value goes from $400,000 to $500,000.  In this case, the property taxes will rise from $4,000 to $5,000 per year or a 25% increase.   Since the current price is below the original sales price, Prop 13 is not binding.   This could pose issues for senior citizens and those on fixed budgets as they may face significant new expenditures.

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