Building a "Granny Flat" for Rental Income Actually Worth It in 2026?

Property taxes sound about as exciting as watching paint dry. But then you hear stories about two neighbors with identical houses paying completely different tax bills, and suddenly you're like... wait, what? Picture this: Same street, same square footage, same ocean view. One neighbor pays $1,200 a year . The other pays $12,000 . That's not a glitch. That's California's Proposition 13 doing exactly what it was designed to do back in 1978. And honestly? It's probably the reason your grandparents still live in that house they bought when Nixon was president. So grab your oat milk latte, and let's break down why your California property taxes won't randomly explode into the stratosphere. What Even IS Prop 13? The TL;DR Version Proposition 13 is basically California's property tax constitution. Voters passed it in 1978 because people were literally being taxed out of their homes . Think 1970s inflation, stagnant wages, and tax bills doubling overnight. Not cute. Here's what Prop 13 did in plain English: 1. Capped the tax rate at 1% Your property tax is generally 1% of your home's assessed value. Plus maybe a little extra for voter-approved bonds (like school funding), but that's it. 2. Locked in your purchase price as your "base year value" When you buy a house, the county assessor goes, "Cool, you paid $500K? That's your number." They call this your base year value . 3. Limited annual increases to 2% MAX Here's the magic: every year, your assessed value can only go up by 2% or the inflation rate — whichever is lower. Meanwhile, your neighbor's house that sold for $1 million? Their assessed value is whatever they paid, plus 2% annual bumps. 4. Only reassess when ownership changes or you build something new Your house could double in market value overnight (thanks, Bay Area tech money), and your tax billdoes not care. It's chilling at your purchase price + 2% per year. Why Your Tax Bill Won't Go Cosmic (The Math Part)Okay, let's make this real with actual numbers. You buy a condo in 2026 for $500,000 . Your first-year assessed value: $500,000. Property tax (roughly): $5,000 (1%). The next year, your neighbor sells their identical unit for $600,000. Market values just jumped 20%. You panic, thinking your taxes are about to explode. They don't. Here's what happens instead: Year 2 assessed value: $510,000 max (that's your $500K plus the 2% cap) Year 3 assessed value: $520,200 max Year 10: You're at like $609,497 (assuming 2% every year) Meanwhile, your neighbor who bought in 2026? Their taxes started at $6,000. The gap just keeps growing. That's Prop 13 in action. Real-life example from a legal blog: Grandma buys a condo in 1975 for $25,000. Today she pays about $673 in property taxes. Dad buys the same unit in 2000 for $150,000 — pays about $2,000 . Daughter buys it in 2025 for $600,000 — pays $6,000 . The Bottom Line: What This Means for You IF you own property in California (or plan to), here's your cheat sheet: Your taxes are predictable. That 2% annual cap means no surprise bills. Your purchase price matters forever. Buy low, and your tax base stays low forever (plus 2%/year). Don't trigger reassessment accidentally. Gifting property to kids? Death in the family? Talk to a lawyer FIRST. Prop 19 made inheritance way trickier . Keep your paperwork. If you ever need to prove your base year value, you'll want those closing documents. If your value drops, file for Prop 8. Why pay taxes on phantom equity? The TL;DR version: Prop 13 means your property taxes are anchored to what you paid, not what your house is worth now. They can only climb 2% a year. It's why Grandma's taxes are lower than your rent. And despite the controversy, it's still the law of the land in California. Now go forth and impress your friends with your sudden expertise on 1978 tax policy.