California Real Estate SalespersonTransfer of PropertyHard
A property was purchased in 2018 for $500,000, establishing its Prop 13 base year value. Assuming the maximum allowable annual increase and no changes in ownership or new construction, what is the assessed value in 2021 (three years later)?
- A$510,000
- B$550,000
- C$560,000
- D$530,604
Show answer & explanationAnswer & explanation
Correct answer: D. $530,604
Prop 13 caps annual increases in assessed value at 2% per year, compounded. $500,000 × 1.02³ = $500,000 × 1.061208 = $530,604. This compounding calculation, rather than simple 2%-per-year addition, is required to reach the correct figure.
Why the other options are wrong
- A. This reflects only one year's 2% increase, not three years compounded.
- B. This uses a flat 10% increase, not the compounded 2% annual cap.
- C. This overstates the increase beyond the compounded 2% cap.
Prop 13 2% Annual Cap
Under Proposition 13, a property's assessed value may increase by no more than 2% per year, compounded annually, absent a change in ownership or new construction.
- Formula: Base Value × (1.02)^n years
- Applies only absent sale or new construction
- Actual market value can rise faster, but taxable value is capped
Memory trick: Two percent, compounded, not simple — Prop 13's yearly ceiling