A silver lining as property values fall

So you bought a home near the top of the market, and ever since you've watched in pain as it has declined in value.

Congratulations.

Homeowners may view falling home values as only a negative, but there is a silver lining: the prospect of lower property taxes, which could save you hundreds of dollars a year.

Assessors in the five-county Los Angeles area are now in the process of cutting property taxes on more than half a million homes because of plunging home values. Notifications will go out this month and next to lucky homeowners.

Although savings will vary widely, the average annual property tax reduction in Los Angeles County is expected to be about $750. In Riverside County, it'll be around $1,200.

But don't start counting your money yet. Those tax breaks will go only to selected homeowners who bought their homes around the market's peak in 2005 and 2006. The Los Angeles County Assessor's office, for example, reviewed only properties purchased since July 1, 2004, and will be lowering taxes on 128,000 out of the 318,000 examined.

Assessors in Orange, Riverside, San Bernardino and Ventura counties reviewed sales since Jan. 1, 2004, and say they expect to reduce taxes on about two-thirds of those homes.

Homes bought before 2004 are not being automatically reviewed because of the way property values are set.

When a home is sold, the taxable value is set at the sale price. After that, it can rise no more than 2% a year.

Because the market value of most homes sold before 2004 increased far more than 2% annually in the first part of the decade, those properties are probably still worth more than their taxable value, even when the recent slump is considered.

But if you believe your home's taxable value is too high -- no matter when you bought it -- you can request a review from the county appraiser. And if that fails, you can file an appeal with county's assessment appeals board.

"We can make a mistake," said Orange County Appraiser Webster J. Guillory. "But if we do make a mistake, just share your information with us and we'll work it out together."

Property tax reductions due to falling home values were established by Proposition 8, which was approved by voters in November 1978 as an amendment to the tax-limiting Proposition 13, which passed in June of that year.