By James L. Cunningham Jr., Esq.
What is Prop 13, and how does it affect my California property taxes? Does Prop 13 apply to all California property, including rentals and commercial real estate? Can I avoid Prop 13 reassessment by selling my home to my kids for $1? Why Is Prop 13 Good for Homeowners?
Prop 13 California is why two neighbors can own identical homes and pay wildly different property taxes. One family bought in 1985 and pays $1,200 a year. The family next door bought last year and pays $12,000. Same street, same square footage, same view—ten times the tax bill.
That’s not a glitch. That’s Proposition 13 doing exactly what it was designed to do.
If you own California real estate, or you’re about to inherit it, or you’re thinking about transferring property to your kids, you need to understand how Prop 13 works, as well as how easy it is to lose its benefits if you’re not careful.
This article breaks down the basics: what Prop 13 does, why it exists, what triggers reassessment, and what you can do to protect your low tax base. As always, this is educational information, not legal advice. For guidance specific to your situation, consult a qualified California estate planning attorney.
At CunninghamLegal, we help families protect and transfer real estate while minimizing taxes. Schedule a free call today.
How Has California Prop 13 Impacted Homeowners’ Property Taxes?
California Prop 13 fundamentally changed how property taxes work in this state, and the impact has been enormous for long-term homeowners.
Here’s how it works: Proposition 13 sets property taxes at 1% of the assessed value at purchase when a change in ownership occurs. After that, your assessed value can only increase by a maximum of 2% per year, no matter what happens to the market.
California real estate has increased, on average, over 6% per year for the last 50 years. That means Prop 13’s 2% cap has saved long-term homeowners a fortune.
Over time, people who’ve owned property for decades pay dramatically less than people who buy the same kind of home today. If three different generations bought condos in the same complex, it could look something like this:
- Grandma buys in 1975 for $25,000—taxes are about $673 today
- Dad buys in 2000 for $150,000—taxes are about $2,000 today
- Daughter buys in 2025 for $600,000—taxes are about $6,000 today
That’s the same condo with almost a 10x difference in property taxes. That’s Prop 13 in real life.
Why Did California Pass Prop 13 in 1978?
California passed Prop 13 in 1978 because homeowners were being taxed out of their homes—and they’d had enough.
The 1970s were brutal. Rapid inflation, rising unemployment (7.2% in 1970 and climbing), and home prices that nearly tripled in less than a decade created a perfect storm. Before Prop 13, property taxes were based on market value, often reassessed annually. Combined tax rates could hit 3% of market value, and the statewide average hovered around 2.67%.
When prices jumped, taxes jumped. Longtime homeowners—especially seniors on fixed incomes—watched their tax bills double and triple while their income stayed flat. Many faced losing homes they’d owned for decades simply because they couldn’t afford the property taxes.
That pressure cooker produced the tax revolt. In 1978, Proposition 13 passed with 65% of the vote. It capped property taxes at 1% of purchase price and limited annual increases to 2%. Overnight, California became one of the most taxpayer-friendly states for property owners—if you could afford to buy in.
Why Is Prop 13 Good for California Homeowners?
Prop 13 is good for California homeowners because it provides stability and predictability. You know your property taxes are only going to increase by a maximum of 2% per year, regardless of what the market does.
That’s not the case in many other states. In places without Prop 13-style protections, homeowners can see their property taxes spike 20%, 30%, or more in a single year if home values surge. That kind of volatility makes it nearly impossible to budget—and it’s exactly what was happening in California before 1978.
Prop 13 helps homeowners avoid being priced out of their homes due to escalating property taxes. If you live in an area that’s seen rapid appreciation—typically urban or coastal California—you’re not going to get hit with taxes that skyrocket just because your neighbor sold for a record price.
For long-term owners, Prop 13 creates a shield against market fluctuations. Your home’s value can double or triple, but your tax bill stays anchored to what you originally paid, plus that 2% annual cap.
What Is “Factored Base Year Value” on My Property Tax Bill?
Factored base year value is the number California uses to calculate your property taxes under Prop 13—and understanding it explains why your taxes stay so low.
When you buy property, the county assessor establishes your base year value. That’s essentially your purchase price. Each year after that, the assessor applies the maximum 2% increase allowed under Prop 13. The result is your factored base year value—your original purchase price, adjusted upward by 2% annually.
Here’s an example: You buy a home for $300,000. The following year, your assessed value can only increase to $306,000—even if the market value jumped to $350,000. You’re taxed on $306,000, not on what the home is actually worth.
Example breakdown:
- Purchase price: $300,000
- Next year’s assessed value (max 2% increase): $306,000
- Market value that year: $350,000
- You’re taxed on $306,000, not the full market value
In Auburn, CA, that difference means your annual property tax might be around $3,061 instead of $3,500. That’s real money saved—and the gap only grows wider the longer you own the property.
When Does Prop 13 Trigger a Full Property Tax Reassessment?
Prop 13 triggers a complete property tax reassessment whenever there’s a change in ownership. That includes sales, specific gifts, and—here’s the one that catches people off guard—death.
When a change in ownership occurs, the property gets reassessed to current fair market value. Your new property tax becomes 1% of that new value. All those years of 2% caps? Gone. You’re starting fresh at today’s prices.
The big gotcha: death is a change in ownership. If mom and dad pass away and the property transfers to the kids, the county assessor will reassess it to current market value. If you don’t notify the assessor properly—or if you don’t qualify for an exclusion—they’ll retroactively increase your taxes. I’ve seen families get hit with surprise tax bills going back years.
This is why I keep saying: it’s critical to have legal counsel when somebody passes away. The rules are technical, the deadlines are real, and stepping in it is expensive.
And no, you can’t dodge reassessment with cute tricks. People ask me all the time: “Jim, can’t we just sell the property for a dollar?” If it were that easy, everyone would do it. You can’t sell the property for less than market value and expect your property taxes to reflect that fake number. The assessor isn’t fooled.
How Do Prop 13 and Proposition 19 Affect Inherited Property?
Prop 13 and Proposition 19 together determine whether you can keep a low property tax base when you inherit California real estate—and since 2021, the rules have gotten much tighter.
Before Prop 19 passed in 2020, children could inherit their parents’ home (and even a vacation property or rental) and keep the parents’ low Prop 13 tax base. That parent-to-child exclusion was automatic and generous.
Proposition 19 changed everything. Now, a low property tax base is not automatically transferred to children. If you inherit property and don’t meet Prop 19’s narrow requirements, the county will reassess it to current market value—and your property taxes could jump from $2,000 a year to $15,000 or more.
The remaining exclusions under Prop 19 are limited. Generally, you have to make the inherited property your primary residence within one year, and even then, there are value caps that can trigger partial reassessment.
If you want to avoid a surprise reassessment after a family transfer, you need to plan around the narrow lanes Prop 19 still allows. For the practical breakdown of what can be done under today’s rules, read our article: Prop 19: What California Homeowners Should Know.
How Does Prop 13 Benefit California Property Owners Today?
Prop 13 benefits California property owners today by providing a shield against market volatility—but only if you don’t accidentally trigger a reassessment.
If you’ve owned your home for years or decades, you’re paying property taxes based on what you originally paid, not what your home is worth now. In hot markets like the Bay Area, Los Angeles, or San Diego, that can mean paying a fraction of what your neighbors pay.
It gives homeowners stability and predictability. It keeps people from being priced out by escalating property taxes. It rewards long-term ownership.
But the moment you trigger a change in ownership—especially through death or a family transfer—you can lose benefits you spent decades building.
If you wait too long to handle things after someone passes, the county can retroactively increase your taxes. That’s a frustrating way to learn you should have filed the right forms. Prop 19 made property taxes even more technical, not more forgiving.
That means your “plan” can’t rely on hope, a handshake, or your brother’s opinion at Thanksgiving. If you want to transfer a low tax base to your children, you need a real plan: knowing what transfers qualify, filing the right forms, hitting the deadlines, and documenting everything correctly so the assessor doesn’t “help” you by reassessing first and sorting it out later.
If you’re sitting on a low Prop 13 tax base, or you’re about to inherit property, or you’re thinking about gifting a home to your kids—don’t guess. Schedule a consultation with CunninghamLegal. This is exactly what we do: we help families transfer real estate between generations while minimizing taxes and avoiding the reassessment landmines that blow up perfectly good estate plans.
Schedule a free call with CunninghamLegal today.
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Warm regards,
James L. Cunningham Jr., Esq.
Founder, CunninghamLegal
We guide savvy, caring families in the protection and transfer of multi-generational wealth.
James L. Cunningham Jr. is CEO, Partner, and a Certified Specialist in Estate, Trust, and Probate Law at CunninghamLegal. A well-known speaker and YouTube educator, Jim is the author of the bestselling book, Savvy Estate Planning: What You Need to Know Before You Talk to the Right Lawyer.
