Re-Assessing When Home Prices Fall : Taxes: Getting the levy on your property reduced can be complicated, even if market prices are down in your neighborhood.

Steve Miles couldn’t believe it when he got his tax bill last year. Although home prices have fallen in his Sherman Oaks neighborhood since he bought his home in 1988 for $457,000, his property taxes had increased.

“I thought, ‘This is crazy. How can my assessed value go up 2% and everybody says home values have gone down?’ ” he said.

A UCLA doctor, Miles, 36, figures his own home is now worth perhaps $60,000 less than what he paid for it, according to sales figures from the California Assn. of Realtors.

But as Miles learned when he appealed the decision, it isn’t as simple as lower prices. Officials from several Southern California counties said getting your property tax assessment reduced can be complicated, even if prices are down in your area, as they are in much of Southern California.

First, you need to understand how property tax bills are determined.

County assessors generally use the purchase price to determine a house’s assessed value. As the result of California’s 1978 tax-limiting Proposition 13, every year the amount is increased automatically by no more than 2%. If your home has appreciated considerably since you bought it, it’s almost certain to be worth more than its assessed value plus the 2% a year.

It doesn’t matter how much its value has declined in the last year or two unless it drops below its assessed value--the amount you are paying taxes on.

For example, homeowners who bought their house for $100,000 in 1980 would have an assessed value of $100,000 plus annual increases of not more than 2% since then.

Let’s say by 1989 the home’s market value had appreciated to $200,000. This year its value declined to $190,000. Even though the market value is less than last year, it is still well above the home’s assessed value of roughly $120,000, so taxes won’t go down.

The people most likely to be caught in Miles’ situation are those who bought at the height of the market a year or two ago. Home values in their areas never appreciated beyond that peak and instead have steadily declined. Their tax bills didn’t.

There is some hope for these homeowners, said Carrie Harris, division chief of the Los Angeles County Assessment Appeals Board. They can appeal for a lower tax bill. However, the appeal only covers the value as of March 1 of the current year--the date all California counties use to determine tax bills.

If your home’s value has declined since March, you’ll have to wait until next year’s appeal filing period--July 2 to September 15--to complain. Next year’s bill will also include the 2% annual increase, approved in 1978 at a time of rampant inflation, when it was hard to imagine home prices declining.

The 2% rule was an attempt to keep a balance between those who had bought homes years earlier and had low assessed values, and new buyers paying higher taxes on similar properties, said Robert Knowles, public information officer for the Los Angeles County Assessor’s Office.

Homeowners are not notified in advance about the additional 2% because it is automatically added to all tax bills. Officials acknowledge, however, that some are confused by it.

If you feel your assessment is too high, you have two ways to appeal it. If you believe the assessment was originally too high, you can ask to have it permanently lowered.

But you can only do that in the year you acquired the house or during the following three years, Harris said. If you wait until after the first year to file and get a reduction, it won’t be retroactive, and you can only lower your assessment once.

Or, if you think the original assessment was correct but your home’s value has since dropped, you can ask for a reduction for this year only. In future years you will have to apply again if you think the home’s value is still below the assessed level, Harris said. Miles said he is using this method because he thinks it is simpler.

Either way, you need evidence. If comparable homes are selling for less than your assessed value, you may have a case. But you usually need a pattern of lower-priced home sales, not just one, assessors said. And it can be difficult to find sales in a slow market.

Even if new homes in your development are selling for less than you paid for a similar model, you won’t automatically get a reduced tax bill.

It depends on whether the price cut is based on distress, such as the developer’s financial trouble, Harris said.

“We don’t willy-nilly lower values unless it’s a general trend,” said Gary Orso, assessor for Riverside County. If 98 houses in a development sold for the same price, for example, and the last two are discounted for quick sale, it isn’t fair to the first 98 buyers to lower the value.

Thus far, Riverside County hasn’t had much of a decline in prices compared to Los Angeles and Orange counties, he added.

However, even if the homes aren’t selling for less, look at what your new neighbors are getting for the same price. If they paid the $300,000 you did but also got a $25,000 car or a two-week Hawaiian vacation, their house is actually worth less, which means yours probably is too, several assessors said.

Such inducements are supposed to be taken into account when the assessed value is determined. Along with all their other papers, home buyers are required to fill out a form that indicates any special deal such as below-market financing or a “free” vacation or car, said Bradley Jacobs, Orange County assessor.

A car or vacation is an obvious extra, but what about upgrades on the property itself? You may notice if the developer throws in a swimming pool, but other items are harder to spot.

Developers hate to lower prices, said Greg Noel, a consultant with the Corona office of the Meyers Group research firm. Even with home sales slow, they would rather give your neighbor fancier appliances and costlier carpeting than cut the price, because it will make you and other previous buyers furious.

So the houses may cost the same but be worth more because of added amenities, which make nearby homes without those goodies worth less. When developers do cut prices, they may hear about it from irate homeowners demanding rebates, which happened last summer in the Antelope Valley.

Knowles said the L.A. County Assessor’s Office plans to examine the tax assessments of certain Antelope Valley homeowners since reading an Aug. 20 story in The Times noting that newer homes in their tract were priced $50,000 less than they had paid.

The assessor’s office will take action on its own if officials are aware of a change, but it doesn’t have enough employees to check each taxpayer’s home for a decline in value, Knowles said. That’s why it’s up to homeowners to appeal if they think they are overassessed.

Knowles and other officials emphasized that decisions depend on home values, not whether the county or assessor needs more money.

“We’re not on commission,” Jacobs said. “If it goes down, fine. It’s not a personal matter with us.”

The last time officials remember reducing taxes on a lot of real estate was in 1984, when many condominiums were reassessed as prices fell. Single-family homes were less affected by the downturn.

Each year 10,000 to 11,000 property tax assessments are appealed in Los Angeles County, Knowles said. “About half we agree with,” Knowles said. The rest go to the county Assessment Appeals Board, where about half the remaining appeals are granted, Knowles said.

The appeals process can take several months. The wait depends on how many cases are being heard, L.A. County’s Harris said, but she hasn’t noticed an increase so far this year. The appeals board meets from September to June.

Back in Sherman Oaks, Steve Miles is waiting for a county assessor to take a look at his 2,670-square-foot ranch house, which isn’t getting any more valuable. In the meantime, he’s just glad he didn’t take out a home-equity loan.