California Property Tax Based on Purchase Price: Prop 13 and Resets

California property tax is based on your purchase price because of Proposition 13. When you buy real property, the county assessor sets the assessed value at what you paid, and that figure becomes your base year value. From there, the assessed value can rise by no more than 2% per year, and your annual bill is roughly 1% of that value plus voter-approved local charges. The purchase price only stops controlling your taxes when something specific happens to the property, such as a sale, a qualifying ownership change, or new construction.

How Proposition 13 Locks In the Purchase Price

Proposition 13, passed by California voters in 1978, changed the state’s property tax system. Before it, counties could reassess property at current market value whenever they chose, which led to unpredictable tax spikes. Under the current system, the assessed value of your property is set at its market value on the date you acquire it.¹ That figure, almost always your purchase price in an arm’s-length sale, becomes the starting point for every future tax calculation on the property.

The practical result is that two identical houses on the same street can carry very different tax bills. A neighbor who bought in 1990 for $200,000 might have an assessed value under $400,000 today, while a 2024 buyer next door could be assessed at $1.2 million. That gap isn’t an error. It is the system working as designed.

The 2% Annual Cap on Increases

Once your base year value is set, the assessed value can increase each year by the lesser of 2% or the change in the California Consumer Price Index.² In most years the CPI exceeds 2%, so the cap effectively holds the increase to 2%. For the 2025–26 assessment year, the CPI increase came in at 2.514%, and the Board of Equalization applied the 2% maximum.³

This is where long-term owners save real money. If you bought a home for $500,000, ten years of maximum increases would leave the assessed value around $609,000, even if the market value doubled in the same period.

One detail worth understanding: the 2% cap applies to the factored base year value, not to your total bill. Voter-approved bonds and special assessments on the bill can grow without any Prop 13 restriction.

What Resets Your Assessed Value

The purchase-price anchor holds until a triggering event occurs. The two main triggers are a change in ownership and new construction.⁴ When either happens, the assessor resets the assessed value to current market value and a new base year value takes hold.

Change in ownership covers more than a traditional sale. It includes gifts, inheritance, and transfers of more than 50% of the ownership interests in a legal entity that holds property.⁵ That last one catches people off guard: if an LLC or corporation owns a building and more than half its ownership changes hands, the property gets reassessed even though the deed never moved.

New construction only resets the value of what was added. If you add a bedroom or remodel a kitchen, the assessor determines the market value of the improvement and adds it to your existing base year value. The original structure keeps its capped value. Major renovations can still add substantial assessed value, so it pays to think through the tax consequences before starting a large project.

Supplemental Tax Bills After a Purchase

If you just bought a home, the first surprise from the purchase-price rule usually arrives as a supplemental tax bill. When a change in ownership or new construction resets the assessed value mid-year, the county issues a prorated bill covering the gap between the old and new assessed values, from the first day of the month following the purchase through the end of the fiscal year on June 30.⁶

How many supplemental bills you receive depends on when you closed:

Purchase between June 1 and December 31: one supplemental bill covering the remainder of the current fiscal year.
Purchase between January 1 and May 31: two supplemental bills, one for the rest of the current fiscal year and one for the entire next fiscal year.

The math is straightforward. The assessor subtracts the prior assessed value from your new assessed value, multiplies the difference by the tax rate, and prorates the result over the months remaining in the fiscal year.⁶ So if the new assessed value runs $250,000 above the old one and you closed in October, you would owe supplemental tax on that $250,000 difference prorated for nine months.

Supplemental bills arrive separately from your annual tax bill, sometimes weeks or months after closing. They are mailed to you rather than to your mortgage lender, so an escrow account will not automatically cover them. This is where new buyers consistently get caught off guard.

Family Transfers Under Proposition 19

People often assume they can pass property to their children without triggering a new purchase-price assessment. That was largely true before February 2021, when Propositions 58 and 193 let parents transfer any property to their children without reassessment, including a primary home plus up to $1 million in other real property.⁴

Proposition 19, which voters approved in November 2020, narrowed those exclusions for transfers on or after February 16, 2021. A parent-child or grandparent-grandchild transfer now avoids reassessment only if the property was the transferor’s primary residence and the new owner moves in as their own primary residence within one year.⁷ Investment properties, vacation homes, and commercial real estate no longer qualify at all.

Even for qualifying primary residences, the exclusion is capped. It is limited to the property’s existing taxable value plus $1,044,586 for transfers between February 16, 2025, and February 15, 2027.⁸ If the current market value exceeds that combined figure, the amount above the cap gets added to the new base year value. The limit is adjusted every two years.

Taking Your Purchase-Price Value to a New Home

Proposition 19 also expanded portability for homeowners age 55 or older and for those who are severely disabled. If you qualify, you can sell your current home and transfer its base year value to a replacement home anywhere in California, up to three times.⁹ The rules now cover the whole state, replacing an older system that limited transfers to one and to the same county or participating counties.

If the replacement home costs the same or less than the market value of your original home, the full base year value carries over with no adjustment. If you buy a more expensive home, the difference between the two market values is added to your transferred base year value.⁷ You must buy or build the replacement within two years of selling the original, and it must be your primary residence.

How the Tax Bill Is Calculated From Your Assessed Value

Your annual property tax bill starts with a base rate of 1% of the assessed value.¹⁰ On a home assessed at $800,000, that is $8,000 before anything else. The 1% is rarely the whole story, though. Most owners also pay voter-approved bond measures and special assessments that push the effective rate higher.

The most common additions are general obligation bonds for school construction, local infrastructure bonds, and Mello-Roos special taxes. Mello-Roos districts, formally Community Facilities Districts, fund infrastructure and services in newer developments. Unlike the 1% rate that scales with assessed value, Mello-Roos charges are often calculated from property characteristics like square footage or lot size, and they do not decrease as the property ages.¹⁰

If you are looking at homes, check the full tax bill rather than just the assessed value. A home in a Mello-Roos district can easily carry an effective tax rate of 1.5% or more. Sellers must disclose Mello-Roos liens and a title search will flag them, but the dollar amount still surprises many buyers.

Exemptions That Reduce the Value You’re Taxed On

Exemptions lower the assessed value the tax rate is applied to, which is different from the reassessment exclusions above. Exclusions keep your base year value from resetting. Exemptions shrink the value the county actually taxes.

Homeowners’ Exemption

If you own and occupy a home as your primary residence, you qualify for a $7,000 reduction in assessed value.¹¹ At the 1% base rate, that is roughly $70 a year. Small, but you have to file for it. Your county assessor’s office handles the application, and once approved it stays in place until you move or the home is no longer your primary residence.

Disabled Veterans’ Exemption

Veterans rated 100% disabled due to a service-connected condition, or compensated at the 100% rate due to unemployability, qualify for a much larger reduction. There are two tiers:¹²

Basic exemption: $180,671 reduction in assessed value for 2026.
Low-income exemption: $271,009 reduction for households with annual income of $81,131 or less.¹³

Both amounts are adjusted annually for inflation. An unmarried surviving spouse of a qualifying veteran may also claim the exemption, even if the veteran was not eligible during their lifetime, as long as the veteran’s death resulted from service-connected causes.¹⁴

Challenging an Assessed Value You Believe Is Too High

If your property is assessed above its actual market value, you have two ways to push the number down.

Decline-in-Value Reviews

When the market drops, your property’s current market value can fall below its factored base year value. As of each January 1 lien date, the assessor is supposed to enroll the lower of the factored base year value or the current market value.¹⁵ In practice, assessors cannot individually review every property every year, so if you think your home has lost value, contact your county assessor’s office to request a review. Any reduction is temporary; when the market recovers, the assessed value can climb back up to the factored base year value, still subject to the 2% annual cap.

Formal Assessment Appeals

You can also file a formal appeal with your county’s assessment appeals board. In most counties, the filing window runs from July 2 through September 15. In counties where the assessor does not mail value notices by August 1, the deadline extends to December 1.¹⁶

The strongest evidence in a residential appeal is recent sales of comparable properties. To be admissible, those sales generally must have occurred on or before the January 1 valuation date, or no more than 90 days after it. Sales more than 90 days after the valuation date cannot be used, and trying to submit them is the most common mistake homeowners make.¹⁷

One point in favor of owner-occupants: if you are appealing the assessed value of your principal residence, the assessor bears the burden of proving the assessment is correct and must present evidence first. In most other appeals, the property owner carries that burden.¹⁷

1
Santa Clara County Assessor. Understanding Proposition 13
2
California State Board of Equalization. Understanding Proposition 13
3
California State Board of Equalization. 2025-26 California Consumer Price Index Inflation Factor
4
California State Board of Equalization. Exclusions From Reappraisal Frequently Asked Questions – Propositions 58 and 193
5
California State Board of Equalization. Legal Entity Ownership Program – Definition of Change in Ownership
6
California State Board of Equalization. Supplemental Assessment
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California State Board of Equalization. Proposition 19 Fact Sheet
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California State Board of Equalization. BOE Adjusts the Proposition 19 Intergenerational Transfer Exclusion
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California State Board of Equalization. Proposition 19 – Parent-Child and Grandparent-Grandchild Exclusion Comparison
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California State Board of Equalization. California Property Tax – An Overview
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California Legislative Information. California Revenue and Taxation Code 218 – Homeowners Property Tax Exemption
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California State Board of Equalization. Disabled Veterans Exemption
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California State Board of Equalization. Disabled Veterans Exemption Increases for 2026
14
CalVet. Property Tax Exemptions
15
California State Board of Equalization. Decline in Value – Proposition 8
16
California Tax Service Center. Property Tax Function Important Dates
17
California State Board of Equalization. Residential Property Assessment Appeals