California Prop 13, explained

The two rules

Prop 13, passed by California voters in 1978, did two things that still govern California property tax today:

1. Capped the basic property tax rate at 1% of assessed value. Local additions are limited to voter-approved bonded indebtedness and a handful of categorical add-ons.
2. Capped annual increases in assessed value at 2%. Each year, the county assessor can increase your assessed value by no more than 2%, regardless of how fast the market rises.

Both rules apply until a triggering event: a sale (change of ownership) or new construction. At that point, the property is reassessed to its current full market value and the 2% cap starts ticking again from the new base.

Why long-time owners pay so little

Compounding 2%/year for decades, while market values rise much faster, produces enormous gaps between assessed value and market value:

• A home bought in 1990 for $250,000 in coastal California has an assessed value today of approximately $375,000 (2% × 33 years compounded). Its market value is more like $1.6M. Annual property tax: ~$3,750.
• A new buyer of the same home pays roughly $1.6M and is reassessed to $1.6M. Annual property tax: ~$16,000 — a 4× delta from the long-time owner next door.

This is the structural reason California's effective property tax rate (median home tax ÷ median home value) is around 0.74% — far below the 1% headline rate. A large share of California homes are owned by long-time owners with deeply suppressed assessed values.

What counts as a "change of ownership"?

The key trigger that resets the assessed value is "change of ownership." Some events count, some don't:

• Counts (resets to market): traditional sales, most gifts, transfers to LLCs/most trusts, transfers to children since Prop 19's effective date (with limited exceptions), foreclosure, and — depending on structure — divorce.
• Does not count (no reset): transfers between spouses, transfers into and out of revocable living trusts where you're the trustor and beneficiary, certain re-titlings for estate planning, and — uniquely — transfers between legal entities under common ownership.

The "common ownership" carve-out is famous: a property held by an LLC can change LLC ownership through interest transfers without triggering reassessment, as long as no single owner ends up with majority control. This is why some commercial and high-value residential California real estate has been held in LLCs for decades without reassessment, even as the underlying beneficial owners change.

Prop 19 — the 2020 modification

California voters passed Proposition 19 in 2020, which took effect February 16, 2021. It made two major changes:

• Senior portability statewide. Homeowners 55+, severely disabled, or victims of natural disasters can transfer their existing assessed-value base to a new home anywhere in California, up to three times. Previously this was limited to county-of-origin or specific-county lists.
• Sharply restricted parent-to-child transfers. Before Prop 19, parents could transfer the assessed value of a primary residence (and up to $1M of other real estate) to children without reassessment. Prop 19 limits this to primary residence only, and only if the child uses it as their own primary residence within one year. Inherited investment properties, vacation homes, and unused primary residences are now reassessed to market value on transfer.

The Prop 19 changes have meaningful estate-planning implications. Anyone planning to leave California real estate to children should consult a California-licensed estate or property tax attorney — the calculus is not what it was before 2021.

What Prop 13 does NOT cap

The 1% cap and 2% cap apply only to the basic property tax. Several additions sit on top:

• Voter-approved bonded indebtedness. School bonds, infrastructure bonds, and other voter-approved general obligation bonds add to the rate. In some districts these can total 0.2–0.5% on top of the 1% base.
• Mello-Roos special taxes. A 1982 California law (the Mello-Roos Community Facilities Act) allows new development districts to levy fixed-dollar special taxes to fund infrastructure. Mello-Roos taxes are not capped by Prop 13 and don't follow the assessed-value model — they're typically a flat annual amount of $1,000–$5,000+ per home, often for 20–40 years.
• Parcel taxes. Some districts (especially school districts) have voter-approved parcel taxes — flat per-parcel amounts ($100–$500 per year, sometimes more).
• Special assessments. Lighting, landscaping, neighborhood improvement assessments — typically small but additive.

The result is that California's effective tax rate on a recent purchase often runs 1.2–1.6% rather than the headline 1%, with Mello-Roos developments running higher. Always check the property's specific tax bill for the line items that aren't Prop 13 capped.

Implications for buyers

If you're buying in California, your property tax will not match what the seller is paying. Plan for it.

• Use the purchase price as your starting assessed value. Multiply by 1.10–1.30% to get a rough first-year tax estimate. The wide range reflects bonded debt and parcel taxes; pull the actual recent tax bill for precision.
• Check for Mello-Roos. The seller is legally required to disclose Mello-Roos status. Verify on your county assessor's website — search the parcel and look at the "direct levies" or "special assessments" section of the tax bill.
• Plan for 2% growth annually. After year 1, your assessed value rises by no more than 2% per year. Voter- approved bonds may push the total bill up faster, but the basic 1% portion is capped.
• Don't expect appeals to do much. Appeals can succeed if your purchase price was higher than current market (e.g., you bought at the top and values have fallen) or if the assessor over-applied a 2% increase in a year market values were flat. Otherwise, your purchase price is the assessed value, and there's not much to argue.

Implications for sellers

• Your low Prop 13 base does not transfer to your buyer. Buyers will pay current market value × the rate.
• If you're 55+ and moving, file Prop 19 portability. You can carry your existing assessed-value base to a new California home, up to three times, anywhere in the state (since 2021).
• Estate planning is now harder. Leaving California real estate to children no longer carries the old Prop 13 base in most cases. Talk to an estate attorney before assuming your family will benefit from your low base.

Common Prop 13 mistakes

• Estimating tax from the seller's bill. The seller's tax under Prop 13 is irrelevant to what you'll pay. Calculate from your purchase price.
• Ignoring Mello-Roos disclosures. A $4,000/year Mello-Roos special tax can double your effective rate. Read the disclosure documents carefully.
• Transferring property to an LLC casually. Most LLC transfers trigger reassessment. Get tax counsel before any transfer.
• Forgetting Prop 19's parent-child restriction. The pre-2021 inheritance benefit is largely gone. Update your estate plan accordingly.

Putting it together

Prop 13 is California's defining property tax policy. It creates extraordinary stability for long-term homeowners and a meaningful first-year shock for new buyers. Combined with Mello-Roos in newer developments and Prop 19's modification of the inheritance rules, the picture is more nuanced than the "1% cap" shorthand suggests.

Use our effective rate calculator and 30-year projection to model your specific situation. For a sale-and-rebuy decision within California, factor Prop 19 portability into the math — it can dramatically change the picture for over-55 homeowners.