ASSESS/19inches/1stjc/mark2nd

By HOWARD FINE

Staff Reporter

The rebounding real estate market and a quirk in state tax law could bring a surprise tax jolt to thousands of L.A. County property owners who won tax reductions during the prolonged real estate slump.

“If the real estate recovery continues, many property owners could see substantial increases on their property-tax assessments, if not this year, then in the next couple of years,” said Assistant County Assessor Rick Auerbach.

The L.A. County Assessor’s Office and the Assessment Appeals Board granted property-tax reductions to 590,000 property owners from 1991-97, taking $47.6 billion off county tax rolls.

Under 1978’s Propostion 13, tax assessments generally can rise just 2 percent a year. An exception to that rule occurs if a property is sold, in which case it is reassessed at the sale price.

But there is a lesser-known provision under Proposition 8, the 1986 ballot measure that allows property owners to file for reductions in property-tax assessments if the value of the property declines. Once a property has been reassessed downward, it can be raised back to its previous level or even slightly more if property values go up again.

“Those properties that received smaller assessments as a result of successful appeals can have their assessments raised back to the levels they would have been without the downward reassessments,” Auerbach said.

Say a Brentwood property owner who bought his home for $500,000 in 1990 filed an assessment appeal in 1994 and won a 20 percent reduction in the assessed value of his home, to $400,000. That would reduce his basic property-tax bill from $5,000 to $4,000 annually.

But assume that Brentwood property values rise sufficiently to make his home worth $500,000 again. That would require the assessor to hike the assessed value beyond the original 1994 assessment of $500,000 to $552,050, which is what the assessed value would have been if it had increased 2 percent a year from $500,000.

The new assessed value represents a 38 percent hike from the 1994 reassessment of $400,000, and a 25 percent increase from what the 1999 figure would have been had the 2 percent a year been added onto that $400,000.

As a result, the homeowner’s tax bill could go from $4,000 to $5,500 a year.

Auerbach said only a few property owners are likely to see their assessments fully restored to pre-appeal levels this year. But that could change in 1999 and 2000 if real estate prices continue rising, especially in hot markets like Palos Verdes, Brentwood and Bel-Air.

By far the biggest dollar impact of these reassessments will be on major commercial and industrial landowners and their tenants who received property-tax assessment reductions.

“We’re still evaluating what the potential impact of this is going to be,” said Raymond Roski, vice president of assessment and risk management for Majestic Realty, one of L.A.’s largest commercial developers. “We know it will have an impact, but we’re just not sure how much yet.”

Roski said a portion of the property-tax bill is typically passed on to tenants. Just how the bill is divided between landlord and tenant is usually determined during lease negotiations.

As prices rise, the assessor’s office will make the adjustments based on increases in the recorded sale prices of homes in specific neighborhoods.

“It could come as quite a shock, which is why we’re trying to get the word out now,” said Chief Deputy Assessor Gary Townsend.

About 500,000 single-family homeowners and 90,000 commercial, industrial and multi-family unit owners won tax reductions as values declined during the recession.

The average homeowner assessment appeal resulted in a downward adjustment of $45,000 in total assessed value, which means that homeowners, on average, paid $450 less in property taxes.

Commercial property owner assessment appeals resulted in an average downward adjustment of $1 million, which took an average $10,000 off the property tax bill, Auerbach said.