Property Tax Assessment Caps Explained: How States Like California and Michigan Limit Annual Increases

Property tax assessment caps limit how much a home's taxable value can rise each year, no matter how much market value grows. California's Proposition 13 caps growth at 2% annually; Michigan's Taxable Value rises by the lesser of 5% or inflation; Florida's Save Our Homes cap limits homestead assessments to 3% or CPI. Long-time owners benefit; new buyers pay more.

Key Takeaways

• California's Proposition 13 (Cal. Const. art. XIII A) resets a home's assessed value to its purchase price at sale, then caps annual growth at 2% or the change in CPI, whichever is lower.
• Michigan taxes homes on "Taxable Value," which state law (MCL 211.27a) caps at the lesser of 5% or the annual inflation rate multiplier — a different, usually lower figure than the uncapped State Equalized Value.
• Florida's Save Our Homes cap (Fla. Const. art. VII, sec. 4(d); Fla. Stat. sec. 193.155) limits annual assessed-value growth on homestead property to 3% or the change in CPI, whichever is less.
• These caps create an "acquisition value gap": two identical homes can carry very different tax bills based solely on when their current owners bought them.
• A cap changes the value your exemptions are subtracted from — it does not change whether you qualify for a homestead, senior, veteran, or disability exemption.

What Is a Property Tax Assessment Cap?

A property tax assessment cap is a constitutional or statutory limit on how much a property's assessed value can increase from one year to the next, even when its market value climbs faster. Instead of retaxing every home each year at 100% of current market value, a capped state locks in a base value and lets it grow only by a fixed percentage, an inflation index, or whichever of the two is lower. The cap typically resets — usually to full market value — when the property is sold or substantially rebuilt.

This is a different mechanism from the assessed-value-to-market-value ratio covered in our assessed value vs. market value guide, which explains why some states tax only a fraction of a home's market value (Georgia's 40% ratio, for example, or South Carolina's 4% owner-occupied classification). A ratio answers "what share of market value gets taxed this year." An assessment cap answers a different question: how fast that taxable figure is legally allowed to grow from one year to the next, regardless of what the market is doing. A state can have a ratio, a cap, both, or neither — California and Michigan layer a growth cap on top of their own valuation rules, while a state with only a ratio can still see assessed value jump the full amount the market moves in a single year.

Several states use some form of assessment-growth limit, but the mechanics vary widely: some cap only owner-occupied homestead property, others cap all real estate; some reset only at sale, others also reset on new construction. The next three sections cover three of the most-documented examples: California, Michigan, and Florida.

How California's Proposition 13 Caps Assessed Value at 2% a Year

California's Proposition 13, added to the state constitution as Article XIII A in 1978, sets a home's assessed value at its purchase price (or the value of new construction) in the year it is acquired, then allows that "base year value" to grow by no more than 2% a year — or the rate of inflation, if lower — for as long as the same owner holds the property. General property tax rates are separately capped at 1% of assessed value, plus voter-approved debt service.

The base year value resets to current market value only when the property changes ownership or undergoes new construction, according to the Orange County Assessor's Office, which describes the annually adjusted figure as the "factored base year value." Because home prices in most California markets have risen well above 2% a year for long stretches, an owner who has held a house since the 1990s can have an assessed value a fraction of what a next-door neighbor who bought last year is taxed on, even though the two homes are worth roughly the same on the open market today.

Separately, California homeowners can claim the state's Homeowners' Exemption, a flat $7,000 reduction in assessed value available to any owner-occupied principal residence — see our California homestead exemption guide for eligibility and filing details. That exemption is unrelated to the 2% cap; it simply stacks on top of whatever assessed value Proposition 13 has already produced.

How Michigan Caps "Taxable Value" at the Lesser of 5% or Inflation

Michigan assesses property at State Equalized Value (SEV), which is set at roughly 50% of a home's true cash (market) value and is not capped. But since the 1994 Proposal A constitutional amendment, property taxes are actually billed on a separate figure called Taxable Value (TV), and Taxable Value is capped: it can rise each year only by the lesser of 5% or the state's inflation rate multiplier, as long as the property is not sold and has no new additions.

Taxable Value is always the lower of SEV or the prior year's value adjusted by the inflation rate multiplier, under Michigan Compiled Laws section 211.27a. In the year after a property transfers ownership, Taxable Value "uncaps" and resets to that year's SEV, often producing a sharp one-time jump in the new owner's tax bill even when the local tax rate hasn't changed at all. The Michigan Department of Treasury recalculates the inflation rate multiplier annually from the U.S. Consumer Price Index; it has run below 5% in most recent years, so the CPI figure, not the 5% ceiling, has typically been the binding limit.

Because SEV and Taxable Value can diverge significantly on long-held homes, a Michigan homeowner's tax bill is driven by TV, not by the 50%-of-market figure the assessor reports. Michigan's Principal Residence Exemption is a separate benefit — see our Michigan homestead exemption guide — that exempts a qualifying primary residence from local school operating taxes; it does not change how Taxable Value itself is capped or calculated.

How Florida's Save Our Homes Cap Limits Assessments to 3% or CPI

Florida's Save Our Homes cap, added to the state constitution as Article VII, Section 4(d) and codified at Florida Statutes section 193.155, limits the annual increase in a homestead property's assessed value to the lesser of 3% or the percentage change in the Consumer Price Index for the prior year. The cap applies only after a property has qualified for Florida's homestead exemption — see our Florida homestead exemption guide for how to file for that prerequisite — and begins the year following the first homestead assessment.

Each year, the property appraiser compares the home's capped figure against its current "just value" (Florida's term for market value) and taxes whichever is lower, according to the Save Our Homes brochure published by the Florida Department of Revenue. The gap between the two, called the "Save Our Homes benefit," grows every year the market outpaces 3%, and long-time homestead owners can carry a benefit worth hundreds of thousands of dollars in untaxed value. Florida also lets homeowners transfer, or "port," up to $500,000 of that accumulated benefit to a new Florida homestead within a set window after selling.

Quick Comparison: California, Michigan, and Florida Assessment Caps

All three caps limit how fast taxable value can grow, not the tax rate itself, and all three reset differently when a property changes hands.

• California — Proposition 13 (Cal. Const. art. XIII A): caps growth at 2%/year or CPI, whichever is lower; applies to all real property; resets at sale or new construction.
• Michigan — Proposal A (MCL 211.27a): caps Taxable Value growth at 5%/year or the inflation rate multiplier, whichever is lower; applies to all real property; uncaps and resets to State Equalized Value the year after a transfer.
• Florida — Save Our Homes (Fla. Const. art. VII sec. 4(d); Fla. Stat. sec. 193.155): caps growth at 3%/year or CPI, whichever is lower; applies only to homestead property; resets to just value at sale, with up to $500,000 of the benefit portable to a new homestead.

The Acquisition Value Gap: Why Two Nearly Identical Homes Can Have Very Different Tax Bills

Every one of these caps produces the same side effect: because assessed value is tied to when a property was last bought or last uncapped, two houses of equal market value can carry very different tax bills based purely on purchase date. Commentators sometimes describe the resulting pattern, where a newly arrived buyer ends up funding a larger share of local property taxes than a long-settled neighbor in an identical home, as a "welcome stranger" effect.

Economists studying Proposition 13 have documented a related "lock-in effect": because moving resets the assessed value to the current market price, owners have a strong financial incentive to stay put even when a different home would otherwise suit them better, according to a National Bureau of Economic Research analysis. A similar incentive exists, to varying degrees, anywhere an acquisition-based cap is in place, including Michigan and Florida.

None of this makes these caps unusual or improper; they are deliberate policy choices, generally adopted by voters specifically to prevent rising market values from taxing long-time residents, especially retirees on fixed incomes, out of homes they already own. The tradeoff is that the tax burden shifts more heavily onto recent buyers and shorter-tenure owners.

Do Assessment Caps Change Your Exemption Eligibility?

No. An assessment cap and an exemption are two separate steps applied in sequence. The cap first determines the taxable value a jurisdiction is allowed to tax this year; an exemption then subtracts a dollar amount, a percentage, or a millage from that already-capped figure. Qualifying for a homestead, senior, veteran, surviving-spouse, or disability exemption — see our homestead exemption guide — works the same way whether or not your state also happens to cap annual growth.

What does change is the base the exemption is subtracted from. In a capped state, a long-time owner's capped value may already sit well below current market value before any exemption is even applied, so the exemption's dollar or percentage benefit is calculated against a smaller number than a recent buyer's exemption would be.

What if You Disagree With Your Assessed or Capped Value?

You can still appeal an assessment in a capped state. The cap limits how fast your value is allowed to rise, not whether the assessor calculated this year's figure correctly. If you believe your capped value, your base year value, or the underlying market value the assessor used to calculate your cap is wrong, the appeal process works the same way it does anywhere else — see our step-by-step appeal guide for how to gather comparable sales and file with your local board.

Because assessed value and market value diverge so much in states with acquisition-based caps like California, ExemptMyHome's savings estimates for those states are built on assessed value rather than market value — see our methodology page for how each state's estimate is calculated.