# California Prop 13 question

Can someone help me clarify how max property tax increase is calculated via prop 13?

Prop 13 limits it to 2% yearly.

Does this mean the tax increase can be a max of 1% of the 2% of the assessed value?

So a \$1000000 home will have a max tax increase of 1000000*0.02*0.01= \$200 per year?

Or is it just 2% of the assessed value, so max tax yearly increase is 1000000*0.02 = \$20,000?

The second number seems crazy high, which is correct?

To make sense, first understand that Prop 13 was designed because property values in CA shoot up, but incomes do not follow. Many people bought a house for say \$300k in the early 1990s, and within a decade, it had value of \$1.5M+. Yet they do not make 5 times as much money, so property taxes can become unaffordable without a cap.

Thus, the cap is on the assessed value. As explained here,

Under Prop. 13, the property is assessed for tax purposes only when it changes ownership. As long as the property is not sold, future increases in assessed value are limited to an annual inflation factor of no more than 2%.

So if the tax rate is 1% and your house has an assessed value of \$100k, you have

Year 1 taxes = \$100,000 * 0.01 = \$1,000

Year 2 tax cap = \$100,000 * 1.02 * 0.01 = \$1,020

Year 3 tax cap = \$100,000 * (1.02)^2 * 0.01 = \$1,040.40