13 Aug How Do Arizona Property Taxes Work? Full Cash Value vs. Limited Property Value
One question I hear from homeowners all the time is, “My property taxes went up. Can you explain why?”
I understand why people are confused. Arizona property taxes aren’t as simple as looking at what your home is worth and applying a tax rate to that number.
If you own a home in Glendale, Peoria, or anywhere in Maricopa County, you’ve probably seen two different values on your property records: Full Cash Value and Limited Property Value.
They sound similar, but they serve different purposes. Understanding the difference makes the rest of Arizona’s property tax system a lot easier to follow.
What Is Full Cash Value in Arizona?
Full Cash Value, usually abbreviated as FCV, is essentially the county assessor’s estimate of your property’s market value.
For most residential properties, Arizona considers Full Cash Value synonymous with market value. It’s determined through a mass appraisal process, so that doesn’t necessarily mean it’s exactly what your home would sell for if you listed it tomorrow.
That’s an important distinction.
Your home’s actual selling price can be influenced by its condition, upgrades, location within a neighborhood, buyer demand, and plenty of other factors.
Full Cash Value is the assessor’s valuation for property tax purposes.
What Is Limited Property Value?
The second number is your Limited Property Value, or LPV.
This is the one homeowners really need to understand because Limited Property Value is generally the value Arizona uses as the basis for calculating real property taxes.
Your LPV and FCV can be very different.
That’s completely normal.
The Limited Property Value was designed to prevent taxable values from making dramatic jumps simply because real estate prices suddenly increased.
Does Arizona Really Have a 5% Property Tax Cap?
This is where I see a lot of confusion.
People hear about Arizona’s 5% rule and assume their property tax bill can’t increase more than 5% per year.
That’s not what the rule means.
For properties that fall under Arizona’s standard Rule A calculation, the Limited Property Value can generally increase by up to 5% annually and cannot exceed the Full Cash Value. More than 95% of Maricopa County properties use Rule A, according to the Maricopa County Assessor.
There are exceptions.
Arizona uses what’s called Rule B when certain changes occur. Those can include significant construction or demolition, a change in use, a parcel split or consolidation, or certain other circumstances. In those situations, the LPV is calculated differently.
So the simple version is this: the 5% limitation generally applies to the growth of your Limited Property Value under Rule A, not directly to your final tax bill.
Why Can My Arizona Property Tax Bill Still Go Up?
Your Limited Property Value is only one part of the equation.
Property taxes also depend on the tax rates and levies established by the jurisdictions where your property is located.
Those can include counties, cities, school districts, community college districts and other taxing districts. Bonds and budget overrides can also affect taxes.
That’s why your actual tax bill can increase even when your LPV is following the normal rules.
It’s also possible for something that seems even stranger to happen: your Full Cash Value can decrease while your Limited Property Value increases.
If there’s enough difference between the two values, your FCV may fall with market conditions while the LPV continues its normal increase. The LPV simply can’t exceed the FCV.
It sounds backward at first, but once you understand that these two values are calculated differently, it starts making more sense.
Does Buying a Home in Arizona Reset the Property Taxes?
This is an especially important question for people relocating to Arizona.
Some buyers come from states where a home sale can trigger a significant change in the property’s taxable value. Arizona’s system works differently, and buyers shouldn’t simply assume that the home’s Limited Property Value will reset to their purchase price.
When you’re considering a home in Glendale, Peoria, Arrowhead Ranch, Vistancia, or elsewhere in the Northwest Valley, it’s worth reviewing the property’s tax records as part of your research.
I also wouldn’t assume that what the current homeowner pays is exactly what you’ll pay indefinitely. Property taxes have several moving pieces, so it’s better to understand the property’s actual values and taxing jurisdictions rather than relying on a quick estimate.
What’s on Your Maricopa County Notice of Value?
If you own property in Maricopa County, you’ll receive a Notice of Value from the Assessor.
This is worth looking at instead of immediately filing it away.
The notice includes information such as your property’s:
- Full Cash Value
- Limited Property Value
- Legal classification
- Assessment ratio
- Assessed value
It also shows current and prior values so you can see what’s changed.
One thing that’s easy to misunderstand is that your Notice of Value is not your property tax bill.
The Maricopa County Assessor establishes property values. The Maricopa County Treasurer calculates, bills, and collects property taxes. Real property valuation notices are sent in advance of the tax bill that will ultimately use those values.
Can You Appeal Your Arizona Property Value?
Yes, but there’s an important distinction here.
If you believe your property has been incorrectly valued or classified, Arizona provides an appeal process.
For most homeowners, you’re looking at whether the Full Cash Value accurately represents the property’s market value or whether the legal classification is correct.
The Limited Property Value itself is not an appealable value.
There are also deadlines for filing an appeal. In Maricopa County, the deadline varies depending on the type of property and notice, so check the deadline printed on your Notice of Value rather than putting it aside and planning to deal with it later.
Why Can Two Similar Homes Have Different Property Taxes?
This is another question homeowners sometimes ask.
You may look at two similar homes in the same neighborhood and discover that their property tax bills aren’t identical.
That doesn’t necessarily mean something is wrong.
Their Limited Property Values may be different, their property histories may be different, or circumstances affecting their assessments may not be exactly the same.
It’s another reason comparing your tax bill directly with a neighbor’s doesn’t always give you the full picture.
What Arizona Homeowners Really Need to Know
You don’t need to become an expert in Arizona tax law to understand your property taxes.
The biggest thing to remember is that your home’s current market value and the value used as the basis for calculating your property taxes are not necessarily the same thing.
Full Cash Value is generally the assessor’s estimate of market value.
Limited Property Value is generally the value used as the basis for your real property taxes.
And Arizona’s 5% limitation generally applies to increases in the Limited Property Value under the standard Rule A calculation. It does not guarantee that your final property tax bill can only increase by 5%.
Once you understand those differences, that Notice of Value becomes a lot less confusing.
If you own a home in Glendale, Peoria, Arrowhead Ranch, Vistancia, or anywhere in the Northwest Valley and aren’t sure what you’re looking at on your property records, feel free to reach out. I’m always happy to help make sense of the real estate side of it and point you in the right direction when you need specific tax guidance.