California Property Tax Based on Purchase Price: Caps, Resets, and Appeals

California property tax is based on the purchase price you paid for the property. On the day you buy, the county assessor sets your assessed value equal to that price, and that figure becomes your “base year value.” From then on, the assessed value can rise by no more than 2% per year, and your annual bill is roughly 1% of that value plus any voter-approved bonds and special assessments. The purchase price only resets when ownership changes again or you add new construction.

How the Purchase Price Becomes Your Assessed Value

Proposition 13, which California voters passed in 1978, locks your assessed value to the market value on the date you acquire the property.¹ In an arm’s-length sale, that market value is the price you paid. Before Prop 13, counties could reassess at current market value whenever they chose, which produced unpredictable tax spikes. The current rule replaces that discretion with a fixed starting point tied to your transaction.

This is why two nearly identical houses on the same block can carry very different tax bills. A neighbor who bought in 1990 for $200,000 may have an assessed value under $400,000 today. A buyer who closes this year on a comparable home at $1.2 million is assessed at $1.2 million. Both results are working as designed.

The 2% Annual Cap on Increases

Once the assessor sets your base year value, it can rise each year by the lesser of 2% or the change in the California Consumer Price Index.² CPI usually runs above 2%, so most years the increase is capped at the full 2%. For the 2025–26 assessment year, CPI came in at 2.514%, and the Board of Equalization applied the 2% maximum.³

A $500,000 purchase, grown by the maximum 2% for ten years, reaches an assessed value of roughly $609,000. If the home’s actual market value doubles over that stretch, your tax bill still reflects the capped figure, not the market price. That gap is the core benefit of owning for the long term under this system.

One limit worth noting: the 2% cap applies to the factored base year value. Voter-approved bonds and special assessments that appear on your bill can increase independently.

Events That Reset Your Assessed Value

Two things break the 2% cap: a change in ownership and new construction.⁴ When either occurs, the assessor sets a new base year value at current market value, and the clock restarts.

Change in ownership is broader than a sale. It includes gifts, inheritance, and transfers of more than 50% of the ownership interests in a legal entity that holds property.⁵ That last rule catches buyers who hold real estate inside an LLC or corporation off guard: if more than half the entity’s ownership changes hands, the property gets reassessed even though no deed was recorded.

New construction triggers a reassessment of only the added value. If you remodel a kitchen or add a bedroom, the assessor values the improvement at current market value and adds it to your existing base year value. The rest of the structure keeps its capped assessment. Major projects can add meaningful assessed value, so run the numbers before you build.

The Supplemental Tax Bill After You Buy

If you just closed on a California home, the first tax surprise is usually the supplemental bill. When a sale or new construction resets the assessed value mid-year, the county issues a prorated bill covering the difference between the old and new assessed values, running from the first day of the month after the purchase through the end of the fiscal year on June 30.⁶

How many supplemental bills you receive depends on when you close:

Purchase between June 1 and December 31: one supplemental bill covering the remainder of the current fiscal year.
Purchase between January 1 and May 31: two supplemental bills. The first covers the remaining months of the current fiscal year, and the second covers the entire following fiscal year.

The math is simple. The assessor subtracts the prior assessed value from your new one, multiplies the difference by the tax rate, and prorates by the months left in the fiscal year.⁶ If your new assessed value is $250,000 higher than the seller’s and you closed in October, you owe supplemental tax on that $250,000, prorated for the nine months from October through June.

Supplemental bills arrive separately from the regular annual bill, often weeks or months after closing. They go directly to you, not to your mortgage lender, so your escrow account will not pay them automatically. Set the money aside at closing.

Transfers Between Family Members

Inheriting or receiving a California home from a parent used to carry the parent’s low assessed value forward in almost every case. That changed on February 16, 2021. Under Proposition 19, a parent-to-child or grandparent-to-grandchild transfer avoids reassessment only if the home was the transferor’s primary residence and the recipient moves in as their own primary residence within one year.⁷ Rental properties, vacation homes, and commercial real estate transferred between family members no longer qualify for any exclusion.

Even a qualifying primary residence has a value ceiling. The exclusion covers the existing taxable value plus $1,044,586 for transfers between February 16, 2025, and February 15, 2027.⁸ If the home’s market value at transfer exceeds that combined figure, the excess is added to the new base year value. The dollar limit is adjusted every two years.

Keeping Your Base Year Value When You Move

If you are 55 or older or severely disabled, Proposition 19 lets you carry your current home’s base year value to a replacement home anywhere in California, up to three times.⁹ If the replacement home’s market value is equal to or less than the sale price of the original, the full base year value transfers unchanged. If the replacement home costs more, the difference between the two market values is added to the transferred base year value.⁷ You have two years from the sale of the original home to buy or build the replacement, and it must become your primary residence. Victims of a governor-proclaimed wildfire or natural disaster have similar transfer rights regardless of age.

How the 1% Rate Turns Into Your Actual Bill

The base tax rate is 1% of assessed value.¹⁰ On a home assessed at $800,000, that is $8,000 before anything else. Most bills then add voter-approved bond measures for schools and local infrastructure, along with special assessments.

Mello-Roos charges, formally called Community Facilities District taxes, are common in newer developments and fund infrastructure and services. They are often calculated on property characteristics such as square footage or lot size rather than assessed value, and they do not shrink as the property ages.¹⁰ In a Mello-Roos district, the effective tax rate can reach 1.5% or more. Sellers are required to disclose Mello-Roos liens, and a title search will show them, but review the full tax bill before you close so the dollar amount does not catch you by surprise.

Payment Deadlines

Property taxes are billed in two installments:

First installment: due November 1, delinquent after December 10.
Second installment: due February 1, delinquent after April 10.¹¹

Miss either deadline and a 10% penalty attaches to the unpaid amount. If anything remains unpaid on June 30, the property becomes tax-defaulted and begins accruing interest at 1.5% per month on the unpaid balance. Residential property that stays tax-defaulted for five years becomes subject to a tax sale; for nonresidential commercial property, the timeline is three years.¹²

Challenging an Assessment Above Market Value

The purchase-price system assumes your market value equals or exceeds your assessed value. If the market drops below that, two paths can lower your bill.

Decline-in-Value Review

As of each January 1 lien date, the assessor is supposed to enroll the lower of the factored base year value or the current market value.¹³ Assessors do not review every property every year, so if you believe your home is worth less than your assessed value, contact the county assessor and request a review. Any reduction is temporary. As the market recovers, the assessed value can climb back toward the factored base year value, still subject to the 2% annual cap.

Formal Assessment Appeal

You can also file a formal appeal with the county assessment appeals board. In most counties, the filing window runs from July 2 through September 15. In counties where the assessor does not mail value notices by August 1, the deadline extends to December 1.¹¹

The strongest evidence in a residential appeal is recent sales of comparable homes. To be admissible, those sales generally must have closed on or before the January 1 valuation date, or no more than 90 days after it. Sales more than 90 days after the valuation date cannot be used, and submitting them is the most common error homeowners make.¹⁴

For an owner-occupied principal residence, the assessor carries the burden of proving the assessment is correct and must present evidence first. In most other appeals, that burden sits with the property owner.¹⁴

1
Santa Clara County Assessor. Understanding Proposition 13
2
California State Board of Equalization. Understanding Proposition 13
3
California State Board of Equalization. 2025-26 California Consumer Price Index Inflation Factor
4
California State Board of Equalization. Exclusions From Reappraisal Frequently Asked Questions – Propositions 58 and 193
5
California State Board of Equalization. Legal Entity Ownership Program – Definition of Change in Ownership
6
California State Board of Equalization. Supplemental Assessment
7
California State Board of Equalization. Proposition 19 Fact Sheet
8
California State Board of Equalization. BOE Adjusts the Proposition 19 Intergenerational Transfer Exclusion
9
California State Board of Equalization. Proposition 19 – Parent-Child and Grandparent-Grandchild Exclusion Comparison
10
California State Board of Equalization. California Property Tax – An Overview
11
California Tax Service Center. Property Tax Function Important Dates
12
California State Controller’s Office. Chapter 7 Tax Sale FAQ
13
California State Board of Equalization. Decline in Value – Proposition 8
14
California State Board of Equalization. Residential Property Assessment Appeals