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22 | Th e M Rep o RT Feature because there are so many potential variables to consider at the local, regional, district, county, and state level. California represents one of the most challenging environments for calculating an accurate estimate and offers a good example of the complex considerations that can go into property tax estimation. The real estate tax is one of the largest taxes California homeown- ers pay—in some cases exceeding state personal income taxes. The real estate tax is comprised of many kinds of charges, depending on the type of property involved (owner-occupied residential property, investment property, or vacation home). The largest portion of California's real estate tax—sometimes referred to as the one percent rate—is based on the assessed value of the property and was established by Proposition 13 in the late 1970s. County asses- sors assign a value to a property that is equal to its purchase price. Each year thereafter, the assessed value increases by 2 percent or the rate of inflation, whichever is lower. When the property sells again, the assessed value is reset to the new purchase price, start- ing the process over. While this seems fairly straightforward, there are a range of exceptions to the rule. For example, property trans- fers exempt from reassessment include those between spouses or between parents and children, people who are relocating to a comparable home because their existing property is unsafe from an environmental hazard, and homeowners over the age of 55 who transfer their existing as- sessed value to a new home of equal or lesser value in the same county. These are only a few of the nine constitutional amend- ments in California that do not trigger the reassessment rule and must be incorporated into the property tax estimation model. Another example that com- plicates accurate property tax estimation is the fact that some counties and cities in California passed ballot measures or city charters prior to 1978 that cre- ated retirement benefits for local government employees. In such cases of voter-approved debt, local governments may adjust the property tax rate to cover employee retirement costs, within certain limits as established by state law. And since retirement benefit assessment rates differ from one local government to the next, each instance must be uniquely identified in order to appropriately apply the rate to an affected property. Unfortunately, there is no single property tax solution that will fit all states, as each state's tax law presents its own unique chal- lenges. For example, on January 1, 1995, the Save Our Homes Act became law in Florida. Save Our Homes not only increased the homestead exemption from $25,000 to as high as $50,000 (it is $7,000 in California), it also cre- ated a 3-percent cap per year on tax adjustments. As with Proposition 13 in California, the impact of Save Our Homes means that basing estimates on the current tax bill in Florida can lead to some—per- haps costly—errors regarding the amount of taxes a new owner will pay. In particular, ascertain- ing whether or not the property in question will be owner-occu- pied becomes crucial, as the sav- ings on the tax bill amount can be substantial. In addition, the value of the "homestead exemption" an owner has built up over the years (the difference between the market value and current assessed value of their home) can be transported to a new home. This can be con- veyed as either a set amount or as a percentage of the assessed value, depending on the value of the property being purchased. If the property is significantly higher in value than the owner's prior prop- erty, the value is used; if the same or lower, the percentage is used. To illustrate, consider the case of a buyer purchasing a new property with a market value of $380,000, and whose previous home was purchased for $300,000 in 2010. Four years later, the mar- ket value of this first home has increased to $377,800. However, due to the 3-percent annual cap on tax adjustments put in place by the Save Our Homes Act, the property is instead assessed at $327,800. Under Florida law, the homeowner has therefore built up a $50,000 additional exemp- tion amount, above and beyond his normal $50,000 homestead exemption. The result is that, when buying this new $380,000 home, the buyer will pay taxes on the home as though it has a market value of $280,000. Thus, in order to accurately project what a Florida homebuy- er's tax responsibility will be, it is critical to not only determine if the property will be owner-occu- pied, but also the amount of that transportable exemption, if any. One thing is for certain: assum- ing a new owner's tax bill will be the same as the previous owner's is no way to properly estimate a new buyer's actual tax liability. As in California and Florida, Nevada also has a tax adjustment cap. Compounding the level of complexity, though, a new own- er's tax bill amount in Nevada is not based on the actual value of the home. Rather, taxes are based on the materials used to con- struct the home, making tax cal- culations in Nevada unlike other states. The value of materials is determined using a proprietary formula developed by the state of Nevada. It is crucial to obtain the most current material values—as well as the formula itself—to cor- rectly estimate the new tax bill. With these and many other state-specific variables at play, it's clear how easy it can be to incor- rectly estimate real estate taxes in many states. Yet, given that the real estate tax bill will be the largest ongoing fee the new homeowner will pay and that an accurate un- derstanding of monthly payment amounts is essential to customer satisfaction, as well as repeat busi- ness and even mitigating the risk of borrower default, there just isn't any room for error. Unfortunately, there is no single property tax solution that will fit all states.