California property assessments are based on the purchase price of the property; the assessed value is equal to the purchase price in the first year. Every year thereafter, the assessed value increases according to the rate of inflation, capped at an annual increase of 2%. For property owners who have owned their properties for a long time, the assessed value is likely to be significantly lower than market value, particularly those in the hottest housing markets in California.

This tax assessed value, minus any exemptions, is multiplied by the property tax rate to get the property taxes due.

Assessed value is often lower than market value, so effective tax rates (taxes paid as a percentage of market value) in California are typically lower than 1%.