How Much Can Property Taxes Increase in California?

In California, property taxes can increase by a maximum of 2% per year under Proposition 13. This landmark 1978 law caps annual assessed value growth to 2% or the rate of inflation (whichever is lower), protecting long-term owners from runaway tax bills. However, this protection resets entirely when you buy a property—new owners pay taxes based on the purchase price, often resulting in dramatically higher bills than the previous owner paid.

Understanding Proposition 13: The Basics

Proposition 13 fundamentally changed California property taxes when it passed in 1978. Before Prop 13, California property owners faced unpredictable annual tax increases as county assessors revalued properties based on market prices. Some homeowners saw tax bills double or triple in just a few years during the 1970s real estate boom, forcing many seniors and fixed-income families out of their homes.

Prop 13 solved this problem by introducing two key protections:

• Assessment cap: Assessed value can only increase 2% per year
• Tax rate cap: Property tax rates cannot exceed 1% of assessed value (plus voter-approved bonds and special assessments)

This "base year value" system means your property taxes grow predictably at 2% per year regardless of what happens to market values. If your neighborhood's home prices double in five years, your assessed value—and therefore your tax bill—still only increases 2% annually. This creates significant savings for long-term property owners.

How the 2% Cap Works in Practice

When you buy a property in California, the county assessor establishes a base year value equal to your purchase price. This becomes your assessed value for tax purposes. Each year after that, the assessed value increases by up to 2%, creating a "factored base year value."

Example: 20-Year Ownership

This example shows why Prop 13 is so valuable: the longer you own property in California, the bigger the gap between your assessed value and market value grows. Some homeowners who bought in the 1980s pay less than one-third of what their neighbors pay after buying recently at market prices. To learn more about protecting your assessment, read how to appeal property taxes in California.

When the 2% Cap Resets: Change in Ownership

The 2% cap follows the property, not the owner—but only until ownership changes. When property ownership transfers, the county assessor resets the assessed value to current market value (typically the sale price). The new owner then starts fresh with a new base year value and begins the 2% annual growth cycle again.

What Triggers a Reassessment

• Sale of the property: When title transfers between unrelated parties
• Gift transfers: Transferring property as a gift (with some family exceptions—see below)
• Creation of a new legal entity: Transferring property into certain trusts or LLCs
• Transfer of controlling interest: When more than 50% of ownership in an entity changes hands
• Inheritance (partial): Certain transfers to heirs may qualify for exclusions under Proposition 19

This reset is why home sales often trigger shockingly higher tax bills for buyers. If you buy a $1.2 million home from someone who paid $300,000 thirty years ago, your tax bill will be roughly four times what theirs was—even though you're living in the exact same house.

Proposition 19: Family Transfer Changes (2021)

For decades, California law allowed parents to transfer property to children (and grandchildren under certain conditions) without triggering reassessment. This changed dramatically in February 2021 when Proposition 19 took effect, significantly limiting parent-child transfer exclusions.

Old Rules (Before Prop 19)

Parents could transfer up to $1 million in assessed value of any property to their children without reassessment. Primary residences had no value limit. This allowed wealthy families to pass down properties with low tax bases indefinitely.

New Rules (After Prop 19, 2021+)

Parent-child transfer exclusions now only apply to primary residences where the child intends to live as their own primary residence. The exclusion is also capped: if the home's market value exceeds the old assessed value by more than $1 million, the excess is reassessed.

Example: Your parents' home has a base year value of $200,000 but a market value of $1.5 million. If you inherit it and live there as your primary residence, you can exclude up to $1.2 million ($200,000 base + $1 million cap). The remaining $300,000 gets reassessed, raising your assessed value to $500,000—still far below market value, but higher than your parents paid.

All other inherited properties—vacation homes, rental properties, commercial real estate—are now fully reassessed at market value when transferred from parents to children. This change has major implications for estate planning and intergenerational wealth transfers in California.

Exceptions and Special Cases

New Construction and Improvements

Adding new construction to your property—such as building an addition, finishing a basement, or adding a pool—triggers reassessment of the new portion only. Your existing structure keeps its Prop 13 protection, but the new construction is assessed at full market value and added to your base year value.

Example: Your home has a base year value of $400,000. You build a $150,000 addition. Your new assessed value becomes $550,000 (original $400,000 + $150,000 for the addition). The $400,000 portion continues growing at 2% annually; the $150,000 addition starts its own 2% growth cycle from the year of completion.

Disaster Relief

If your property is damaged or destroyed by a disaster (wildfire, earthquake, flood), California law allows you to transfer your base year value to a replacement property within the same county. This prevents disaster victims from losing their Prop 13 benefits when forced to rebuild or relocate. The replacement property must be of "comparable value" to the original.

Base Year Value Portability (Prop 19)

Since April 2021, homeowners age 55+ (or severely disabled, or disaster victims) can transfer their base year value to a new primary residence anywhere in California up to three times. Previously, this benefit was limited to specific counties and allowed only once in a lifetime. The new home must be purchased or built within two years of selling the original property. Learn more about whether appealing property taxes is worth it if you've recently moved.

Assessed Value vs. Market Value: What's the Difference?

Understanding these two numbers is critical to understanding your California property taxes:

In hot real estate markets like the Bay Area, Los Angeles, and San Diego, the gap between assessed value and market value can be enormous—often $500,000 or more for long-term homeowners. This "hidden equity" is one of the most valuable financial benefits of Prop 13, saving owners thousands or tens of thousands of dollars per year in property taxes.

What About Tax Rate Increases?

While Prop 13 caps assessed value growth at 2% annually, it does not cap all property tax rate increases. Here's how the tax rate structure works in California:

• Base tax rate: Limited to 1% of assessed value (this cannot change)
• Voter-approved bonds: Local school, infrastructure, and municipal bonds can add to your tax rate (these appear as separate line items on your tax bill)
• Special assessments: Mello-Roos districts, lighting districts, and other special assessments can add additional charges

In practice, most California homeowners pay an effective tax rate between 1.0% and 1.4% of assessed value when you include bonds and assessments. The 1% base rate is locked in by Prop 13, but voter-approved bonds can push the total higher. Pay attention to local ballot measures—school bonds and infrastructure projects funded by property taxes directly affect your bill. For detailed guidance on challenging your assessment, read our guide on what evidence you need for a property tax appeal.

Can You Appeal Your Assessment in California?

Yes, absolutely. While Prop 13 protects you from runaway growth, it doesn't protect you from errors or overvaluations. You can appeal your assessed value in two scenarios:

1. Annual Assessment Appeals (July-November)

Every county in California accepts assessment appeals during a filing window that typically runs from July 2 to November 30. You can appeal if you believe your property's market value is lower than the assessor's estimate. If you win, your assessed value is temporarily reduced to match the lower market value for that tax year.

This strategy is particularly useful during market downturns. For example, if you bought a home in 2022 for $1 million (establishing a $1 million base year value) and the market declined to $850,000 by 2023, you can appeal to reduce your assessed value to $850,000. Your base year value stays at $1 million and will continue growing at 2% annually, but your temporary reduction saves you property taxes during the downturn.

2. Base Year Value Challenges (Within 12 Months of Purchase)

If you believe the county set your base year value incorrectly when you purchased the property, you have 12 months to challenge it. This is less common but can save significant money if, for example, you bought a fixer-upper and the assessor valued it as if it were move-in ready.

Winning a base year value reduction is powerful: it permanently lowers your starting point, meaning every future year's 2% increase compounds from a lower base. Over decades of ownership, this can save tens of thousands of dollars.

Real-World Examples: Prop 13 in Action

Example 1: San Francisco Tech Boom

Sarah bought a two-bedroom condo in San Francisco in 2012 for $600,000. By 2026, similar condos in her building are selling for $1.3 million. Thanks to Prop 13, her assessed value is only $828,000 (2% annual growth compounded over 14 years).

If she were taxed on the current $1.3 million market value, her annual property tax bill would be approximately $13,000 (at 1% base rate). Instead, she pays $8,280 based on her $828,000 assessed value—saving her $4,720 per year. Over 14 years, Prop 13 has saved Sarah roughly $30,000 in property taxes.

Example 2: Los Angeles Rental Property

David owns a four-unit apartment building in Los Angeles that he bought in 1995 for $450,000. In 2026, the market value is $2.1 million. His assessed value, protected by Prop 13, is only $753,000 (2% compounded over 31 years).

David pays approximately $7,530 in annual property taxes on the $753,000 assessed value. If he were taxed on the $2.1 million market value, his bill would be $21,000—nearly three times higher. Prop 13 saves him $13,470 per year, significantly improving his rental property's cash flow and making the investment far more profitable.

Criticisms and Future of Proposition 13

While Prop 13 is enormously popular among California property owners, it's also controversial. Critics argue it creates several problems:

• Intergenerational inequity: Long-term owners pay far less than new buyers for equivalent homes
• Reduced local revenues: Cities and counties collect less property tax revenue, leading to service cuts and higher fees
• Market distortions: Owners are reluctant to sell (losing their low tax base), reducing housing supply
• Commercial loopholes: Large commercial properties can avoid reassessment through corporate ownership structures

Efforts to reform or repeal Prop 13 have failed repeatedly at the ballot box. In 2020, voters rejected Proposition 15, which would have removed Prop 13 protections for most commercial and industrial properties while keeping them for residential. California voters consistently support Prop 13 by wide margins.

That said, changes around the edges—like Proposition 19's restrictions on parent-child transfers—show that lawmakers continue tweaking the system. Property owners should stay informed about ballot measures and potential reforms that could affect their tax bills.

Frequently Asked Questions

Key Takeaways

• California property taxes can only increase 2% per year under Proposition 13—one of the nation's strongest caps
• The 2% cap applies to assessed value growth, not market value, creating huge savings for long-term owners
• Base year value resets to market value (purchase price) when ownership changes
• Proposition 19 (2021) significantly limited parent-child transfer benefits for inherited properties
• You can appeal your assessment if market value drops or if errors exist—especially valuable for recent buyers
• New construction, improvements, and voter-approved bonds can increase your tax bill beyond the 2% cap

Proposition 13 remains one of California's most important and enduring laws, providing critical tax stability for millions of homeowners and businesses. Understanding how it works—and when to appeal—ensures you're taking full advantage of the protections it provides.