California Proposition 13 Explained: What Homebuyers Need to Know About Property Taxes

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. Call (800) 239-1103.

Proposition 13 limits California’s general property tax to 1% of a property’s assessed value, sets that assessed value at your purchase price when you buy, and caps annual increases in assessed value at 2% (or inflation, if lower) until the property changes hands or is newly built on. Your actual bill is 1% plus voter-approved bonds and local assessments — commonly about 1.1%–1.25% of the purchase price. Lenders qualify you on that new, post-purchase tax, not the seller’s bill.

If you’re buying in California, Prop 13 will shape your property tax bill more than any other rule. Passed by voters in June 1978, it replaced annual market-value reassessments with a system based on what you paid. Here’s how it works, how it affects your mortgage qualification, what to expect from the supplemental tax bill after closing, and where Prop 19 fits in.

How Prop 13 Works

• 1% general levy. The basic property tax rate is 1% of assessed value.
• Base year value. When you buy, the property is reassessed at its market value — normally your purchase price. That becomes your “base year value.”
• 2% annual cap. Each year after that, the assessed value can rise by the rate of inflation (California CPI) or 2%, whichever is lower — no matter what the market does.
• Reassessment triggers. A new base year value is set only when there’s a change in ownership or new construction.
• Extras on top. Voter-approved general obligation bonds, Mello-Roos (Community Facilities District) special taxes, and other direct assessments are added to the 1%. They’re why real bills commonly land around 1.1%–1.25% of value, and higher in newer developments. See my Mello-Roos guide.

What You’ll Pay When You Buy

Your annual property tax is roughly: purchase price × (1% + local bonds and assessments).

Rates vary by city, school district, and tax rate area; Mello-Roos can add significantly more. Always ask for the property’s current tax bill and check whether any special taxes will continue after the sale.

How Prop 13 Affects Mortgage Qualification

Lenders include property taxes in your monthly housing payment (PITI) and debt-to-income ratio, and they estimate taxes on your purchase price. If a seller has owned for 30 years and pays $3,000 a year, that number doesn’t help you — your qualifying payment will reflect taxes of roughly 1.1%–1.25% of what you pay, plus any Mello-Roos. On a $1.5 million purchase that’s about $1,375–$1,563 a month, which can meaningfully reduce how much you can borrow. See how much house you can afford and DTI in California.

The Supplemental Tax Bill: Budget for It

After you buy, the county reassesses the property, but your first regular tax bill may still be based on the seller’s old value. The county then issues one or two supplemental tax bills for the difference, prorated from the first of the month after your purchase through the end of the fiscal year (July 1 – June 30).

• Buy between June and December: one supplemental bill.
• Buy between January and May: two supplemental bills — one for the rest of the current fiscal year and one for the entire next fiscal year, because the next annual bill was already set using the old value.
• Your impound account usually won’t pay it. Lenders don’t receive supplemental bills, so they’re mailed to you. Pay them directly or coordinate with your servicer.

Example: You buy for $900,000 in mid-February 2026; the seller’s assessed value was $350,000. The $550,000 increase at a 1.1% rate is $6,050 a year. The first supplemental bill covers March through June (a one-third proration), about $2,017. Because the purchase was in February, a second supplemental bill covers the full 2026–27 fiscal year, about $6,050. Many buyers are surprised by that second bill — plan for it.

If the supplemental assessment is higher than the property’s value, you can file an assessment appeal, generally within 60 days of the notice. If values later fall below your assessed value, Proposition 8 allows a temporary “decline in value” reduction; you can ask the assessor for a review.

The 2% Cap: Your Long-Term Advantage

Buy at $1,200,000 in 2026, and even at the full 2% every year your assessed value would be about $1,463,000 in 2036 — whatever the market value is by then. A neighbor who bought an identical house for $600,000 in 2006 has an assessed value of no more than about $892,000 today. Two owners on the same street can pay very different taxes, and the longer you own, the bigger your advantage.

This is also why buying sooner rather than later has a tax angle: if prices rise while you wait, you lock in a higher base year value for as long as you own the home. More in should I buy now or wait.

What Triggers — and Doesn’t Trigger — Reassessment

Title and entity changes can have tax consequences, so talk with your title officer or attorney before moving property into or out of an LLC. See mortgages in an LLC and living trust mortgages.

The “Lock-In” Effect

Prop 13 gives long-time owners a strong reason not to move. Someone who bought in San Jose for $200,000 in 1990 has an assessed value of about $400,000 today, even if the home is worth $1.5 million — a tax bill around $4,400 a year at 1.1%. Selling and buying a similar $1.5 million home would reset the bill to roughly $16,500. That math keeps many owners in place and is one reason California inventory stays tight.

Where Prop 19 Fits In

Moving at 55+ (or if severely disabled or a disaster victim): since April 1, 2021, Prop 19 lets eligible homeowners transfer their Prop 13 base year value to a replacement primary residence anywhere in California, up to three times. The replacement must be bought or built within two years of selling the original home. If the new home costs more than the value test allows, the difference is added to the transferred base.

Inheriting from parents: since February 16, 2021, a parent-to-child (or qualifying grandparent-to-grandchild) transfer is excluded from reassessment only if it’s the family home or family farm and the child makes it their principal residence, filing for the homeowners’ exemption within one year. Even then, only the old assessed value plus an adjusted amount — $1,044,586 for transfers from February 16, 2025 through February 15, 2027 — is protected. Other inherited property is reassessed at market value.

Details, examples, and financing strategies are in my Prop 19 guide. For those who used the older rules, see Props 60 and 90.

Frequently Asked Questions

Does my lender use the seller’s low property tax when qualifying me?

No. Lenders estimate property taxes on your purchase price, typically about 1.1%–1.25% of the price plus any Mello-Roos, because the property is reassessed when you buy. The seller’s Prop 13 base doesn’t carry over to you.

What is a supplemental property tax bill?

It’s a separate bill for the difference between the seller’s assessed value and your new assessed value, prorated from the first of the month after your purchase to the end of the fiscal year. Buy between January and May and you’ll get two supplemental bills. They’re mailed to you, not your lender, so they usually aren’t paid from your impound account.

How much can my assessed value go up each year?

By the rate of inflation or 2%, whichever is lower, until there’s a change in ownership or new construction. Market value can rise much faster, which is why long-time owners often pay far less than recent buyers.

Does Prop 13 cap my entire property tax bill at 1%?

No. Prop 13 limits the general levy to 1% of assessed value, but voter-approved bonds, Mello-Roos special taxes, and other assessments are added on top. Total bills commonly run about 1.1%–1.25% of value, and more in some newer communities.

Can I appeal my assessment?

Yes. You can file an assessment appeal with your county’s Assessment Appeals Board; for a supplemental assessment, the deadline is generally 60 days from the notice. If market values later drop below your assessed value, Prop 8 allows a temporary reduction.

What happens to property taxes when I inherit a California home?

Under Prop 19, inherited property is generally reassessed. A parent’s family home can keep part of its old tax base only if the child makes it their principal residence within one year, and only the old assessed value plus $1,044,586 (for transfers from February 16, 2025 through February 15, 2027) is protected.

Does refinancing trigger a reassessment?

No. Refinancing or taking a HELOC is not a change in ownership. Adding or removing people from title can be, so check with your title officer before changing vesting.

Related Resources

• Prop 19: Property Tax Transfers
• Props 60 and 90: Senior Tax Transfers
• Mello-Roos: A Buyer’s Guide
• California Closing Costs
• How Much House Can You Afford?
• First-Time Home Buyer Programs