Housing slump means those who buy now could save on taxes

05:36 PM PDT on Sunday, August 31, 2008
By DUANE W. GANG
The Press-Enterprise
If you hate paying taxes, now might be the time to buy a new home.

One benefit of the housing slump is residents who are able to purchase stand to reap major savings in property tax payments if they hold onto the house for years to come.

Under Prop. 13, the landmark 1978 measure limiting property tax increases, the sales price of a home is generally used to set a home's base value.

From there, the annual assessment, which determines how much is paid in taxes, can jump no more than 2 percent each year.

That means a better tax deal in today's climate of plummeting home values, local tax officials said.

"Their taxes will be lower than their neighbor who bought in 2006 -- forever," said Frit Swain, Riverside County's assistant assessor for valuation.

Here's how: If a person bought a home last year for $300,000, that price would establish the base-year value.

In 10 years, the assessment would jump to about $358,500.

A person buying an identical home this year at the Inland region's median home value of $261,000 would see their assessment increase to about $311,900 in 10 years.

Even if the first homebuyer received a temporary reduction because of the current housing slump, the home's value is likely to rebound over time. When values do come back, the person would be paying the same had the reduction never occurred.

If people can afford to buy, now is a good opportunity, Swain said.

"It's one of those self-adjusting type of things with the housing economy," he said. "It happens every so often."

Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, said most would-be homebuyers probably aren't thinking about the best tax deal.

Rather, they will look at how much house they can get for their money, and the amount of their monthly payments, he said.

"If the tax is down a little bit, that means more money to put into the house," he said. "From a tax perspective, it is a bargain right now."

Vosburgh said the No. 1 virtue of Prop. 13 is making your tax bill predictable.

"Whether you buy this week or you bought 20 years ago, you as an owner know pretty nearly what you will pay this year or next year or in 20 years," he said.

"Because it is based on what you voluntarily agree to pay, you control your own tax destiny."

But before you rush out to buy a house out of foreclosure for dirt cheap in order to pay less in taxes, there is a possible catch. The price paid for a foreclosed home might not reflect the current value if it is heavily damaged, officials in Riverside and San Bernardino counties said.

Ted Lehrer, a spokesman for the San Bernardino County assessor's office, said appraisers determine the base-year value much the same as a normal property. The appraisers compare the sale to other comparable properties sold nearby, he said.

But a foreclosed home might not reflect the current market, he said.

"Oftentimes these properties are not in good condition and/or the lenders are in a hurry to get them sold," Lehrer said by e-mail. "In cases like these, the sales price will not be representative of the market, and the value that the appraiser determines to be the full cash value may be higher."

At some point, foreclosures could become the driving force in home sales, and appraisers might then have to recognize those sales as reflective of the current market value, Lehrer said.

Swain in Riverside County also said the price paid for a foreclosed home is not necessarily the value used to for tax purposes.

"Many times those properties have deferred maintenance on them. Things have been ripped out of the wall," Swain said.

"If we see something that is way out of the ballpark on a low purchase -- many times we will find the owner had to put in another $30,000 to $50,000 -- that would be added on," Swain said.

Reach Duane W. Gang at 951-368-9547 or dgang@PE.com