Explaining Full Cash Value and Limited Property Value
(cross-posted from RealTaxCut)
Last updated: Tuesday, August 19, 2014
At first glance, Arizona’s property tax system can be difficult to understand. One reason for this is that the state uses two different valuation methods to determine the taxable value of your real property. These two methods are: Full Cash Value and Limited Property Value. Today we will explain the difference between these values in order to give you a better understanding of your property taxes.
Full Cash Value (FCV)
Full Cash Value is the market value of your property. In other words, how much the property would be worth if it were put up for sale today. This number is the “starting point” for determining taxable values.
There is no limit to the annual growth of the FCV. In booming economic times (such as during the peak years of the housing bubble) property values under FCV can easily increase by double digit percentages each year.
Limited Property Value (LPV)
The Limited Property Value is similar to the FCV, except that the maximum amount by which the taxable value can increase annually is limited under the Arizona Constitution. This limit can be the greater of:
1. 10% of the previous year’s LPV** or
2. 25% of the difference between the current year’s FCV and the previous year’s LPV.
Because of these two limitations, the LPV will never be more than the FCV.
In some situations, the LPV is set to the same level as LPV’s of other properties with the same use. This occurs in cases of new construction, assessment errors and changes in property use.
Beginning 2015, the Arizona Constitution will be amended to cap the annual increase of assessed value to 5% over the value of the property for the previous year. Additionally, under Prop 117, FCV will no longer be taxable. Instead, the property taxes will only be based on the LPV.
Information taken from the Arizona Tax Research Association “An explanation of Arizona Property Taxes”