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California Real Estate Recovery Means Higher Property Taxes for Many

(Reuters) - California's recovering real estate market means higher property taxes for homeowners whose bills were reduced during the economic downturn, despite tough protections against tax hikes imposed by voters decades ago, a new report says.

After rising by double digits for years during the housing boom, property values in some parts of the most populous U.S. state dropped by more than half during the mortgage meltdown that began in 2007, leading the tax collectors to grant reductions in the levies charged to fund schools, local government and other programs.

But values have started to climb back up, increasing by 12 percent in 2012 and almost 20 percent in 2013, the state legislative analyst's office said in its report.

Most people in the state will not be affected, the report said. But for those who purchased their homes at the top of the market and later got a tax reduction, assessments will come back up along with the value of their properties.

Property taxes in California are limited to 1 percent of a home's assessed value - and increases in that value are typically kept artificially low under the tax relief initiative known as Proposition 13, which passed in 1978.

Under the law, the assessed value of a home may rise by just 2 percent each year, even if the market value of the property increases by much more than that.

The exception, however, is when the assessed value of a house or business property has been reduced due to a drop in the market. In those cases, the assessed value rises in future years to the market level, or to the level that it would have been under Proposition 13's rules, whichever is lower.

People who purchased their homes at the top of the market are the most likely to be in this position, because their taxes would have been based on the market value at that time.

For them, tax rates could go up by as much as 20 percent next year, and 10 percent per year after that, as the market returns to its former level, the report said.

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