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Proposition 117 and Property Values

Proposition 117 was approved by the voters of Arizona in November of 2012.  It will take effect in 2015 and also impacts the 2015 property valuations.

There are two big changes in 117.  First, your property taxes will now only be computed based on the Limited Property Value (LPV.)  Second, the LPV cannot increase more than 5% per year, in almost all cases.  The LPV cannot exceed the FCV in the same year, as before.

Previous to 117, some taxes were based on the Full Cash Value (FCV) and some were based on the LPV.  The FCV is synonymous with market value and can change dramatically year to year, depending on the real estate market.  The LPV cannot increase by more than 5% per year.

While your taxes are based on the LPV, you can only appeal the FCV of your property. This is because the FCV represents market value and LPV is determined by the previous year's value or by a formula defined in statute. 

It is up to the individual taxpayer to appeal or not appeal a property valuation.  With the changes from Proposition 117, there are certain circumstances in which a successful appeal will not impact the property taxes, specifically, if the FCV far exceeds the LPV and the market value is well above the LPV.

Here are two scenarios.  The first one provides an example where a property owner may choose to appeal the value if they believe that the FCV is more than the market value of their property.  If they are successful in this case, the new FCV they are seeking will reduce the LPV, and lower their taxable valuation in the next year (remember the total tax bill may increase depending on tax rates.)

Example 1:

$200,000  Full Cash Value (FCV)

$195,000  Limited Property Value (LPV)

$190,000  Property owner's opinion of the market value of the property

In the scenario above, if the property owner wins their appeal, the new FCV will be reduced to $190,000.  The LPV will also be reduced to $190,000, since the LPV cannot exceed the FCV.  Tax liability is based on the LPV, and would be reduced in this case.

 

Here is a different set of circumstances where the LPV is much less than the FCV.

Example 2:

$200,000  Full Cash Value (FCV)

$175,000  Limited Property Value (LPV)

$180,000  Property owner's opinion of the market value of the property

In this second scenario, even if the owner is successful in having their full cash value reduced to $180,000, it will not be low enough to impact the LPV.  The LPV will stay at $175,000 and there will be no change in next year's taxable value, even though the FCV was reduced.

Property owners have to make the final decision if they want to appeal their valuations.  We hope that the information listed above will help people understand the impacts of Proposition 117 and make an informed decision based on the new law.

If you have additional questions on Proposition 117 or on the appeal process, please visit our appeal page or contact our office.