California’s Proposition 13 is a 1978 constitutional amendment that caps property taxes at 1% of a property’s purchase price, limits annual increases in assessed value to 2%, and requires a two-thirds vote for most new taxes. It applies to homes, commercial buildings, and industrial property alike, and it resets the taxable value only when a property changes hands or is newly built. For long-term owners, that means a tax bill tied to what they paid years ago rather than what the property is worth today.
How the Tax Cap Actually Works
Proposition 13 is codified as Article XIII A of the California Constitution, and it does three things.1Justia Law. California Constitution Article XIII A 1 – Tax Limitation It caps the property tax rate at 1% of full cash value. It sets that full cash value at the moment of purchase or new construction, not at current market prices. And it limits the annual increase in assessed value to 2%, no matter how fast the surrounding market climbs.
The measure also builds in a political lock. New state taxes need a two-thirds vote in the Legislature, and local special taxes need two-thirds approval from voters. That supermajority requirement is one of the reasons Proposition 13 has been so hard to change from the inside.
What This Looks Like for Two Neighbors
The practical effect is easier to see in a specific example. A homeowner who bought in 1990 for $200,000 might pay taxes on an assessed value around $400,000 today, even if the home is now worth $1.5 million. A neighbor who bought an identical house last year pays taxes on the full $1.5 million purchase price. Same street, same house, very different bill.
That gap widens the longer someone stays put. It’s the reason critics call the system unfair to recent buyers and the reason supporters call it essential protection for people who would otherwise be taxed out of their homes as values rise around them.
Inherited Property Rules After Proposition 19
The rules for passing property to children changed significantly when voters approved Proposition 19 in November 2020. Before that, parents could transfer a primary residence to their children with no reassessment, no matter what the children did with it, plus up to $1 million in assessed value of other properties. Children often kept the low tax basis and rented the homes at market rates.
Now a child who inherits a home has to actually move in as a primary residence and file for the homeowners’ or disabled veterans’ exemption within one year of the transfer.2Board of Equalization – BOE.ca.gov. Proposition 19 If they move out later, the property gets reassessed at the next lien date. The old exclusion for rental and other non-primary-residence property was eliminated entirely.
There’s also a value cap. For transfers between February 16, 2025, and February 15, 2027, the protected amount is the property’s existing assessed value plus $1,044,586.2Board of Equalization – BOE.ca.gov. Proposition 19 If the market value at transfer exceeds that threshold, the difference gets added to the assessed value. Family farms follow similar rules, but the heir doesn’t have to live on the property.
Moving and Keeping Your Tax Basis
Proposition 19 also expanded who can carry an existing tax basis to a new home. Homeowners age 55 or older, severely disabled homeowners, and wildfire victims can now transfer their assessed value to a replacement home anywhere in California.3California Legislative Information. California Constitution Article XIII A – Section 2.1 Before this change, the transfer worked only within the same county or in counties that opted in, and most didn’t. Qualifying homeowners can now use the transfer up to three times.2Board of Equalization – BOE.ca.gov. Proposition 19
If the replacement home costs the same or less than the original, the old tax basis carries over intact. If it costs more, the difference between the two sale prices gets added to the transferred basis. The replacement must be purchased within two years of selling the original home.
Commercial Property and the Entity Transfer Loophole
Commercial and industrial properties get the same Proposition 13 protections as homes, and that’s where most reform pressure has landed. Residential owners eventually sell or die, and the property gets reassessed. Commercial property held by a legal entity can effectively change hands without a formal sale, because the ownership interests in the entity move rather than the property itself.
Under California’s Revenue and Taxation Code, reassessment is triggered only when someone obtains control of more than 50% of the ownership interests in a legal entity that owns real property.4California Legislative Information. California Revenue and Taxation Code 64 Transfers of 50% or less, even across multiple deals, don’t trigger reassessment as long as no single acquirer crosses the majority threshold. Structured carefully, a sophisticated buyer can take effective economic control of a property without ever crossing the line that would trigger a new assessment.
Recent Reform Attempts
Voters have turned back the most prominent efforts to weaken Proposition 13. In 2020, Proposition 15 would have created a “split roll” that reassessed commercial and industrial properties at market value while leaving homes alone. The Legislative Analyst’s Office estimated it would have generated $8 billion to $12.5 billion in additional annual property tax revenue by 2025.5Legislative Analyst’s Office. Proposition 15 Voters rejected it, roughly 52% to 48%.
In November 2024, Proposition 5 tried to lower the approval threshold from two-thirds to 55% for local bonds funding affordable housing, permanent supportive housing, and public infrastructure. Voters rejected that one too, by a wider margin of about 55% to 45%.
Proposition 19, passing in the same 2020 election that killed the split roll, is the change that actually took effect. That mixed record is roughly where the politics sit: narrowly drawn changes that feel targeted can pass, broader rewrites keep failing.
The Court Ruling That Settled the Federal Question
The U.S. Supreme Court weighed in on Proposition 13 in Nordlinger v. Hahn in 1992. The Court held that the acquisition-value system does not violate the Equal Protection Clause, finding California had a legitimate interest in promoting neighborhood stability and protecting existing owners’ reliance on predictable tax bills.6Law.Cornell.Edu. Nordlinger v. Hahn, 505 U.S. 1 (1992) That decision effectively closed the door on federal constitutional challenges to the differential tax treatment between long-term and recent buyers.
Between the Nordlinger ruling, the two-thirds vote requirements, and consistent voter support at the ballot box, Proposition 13’s core structure has proven durable. The pieces most likely to keep moving are the ones at the edges: inheritance rules, portability for older homeowners, and the treatment of commercial property held through legal entities.