What's the difference between cost basis and assessed value?

Two different numbers that often confuse East Bay sellers:

Cost basis (federal tax term): - Your original purchase price. - Plus capital improvements (new roof, addition, kitchen remodel — not repairs). - For inherited property: typically the market value at the date of death (this is the "stepped-up basis"). - Used by the IRS to calculate capital gains when you sell.

Example: bought home in 1990 for $300K. Spent $80K on a remodel in 2005. Cost basis = $380K.

Assessed value (California property tax term): - Set by the county assessor. - Under Prop 13, the assessed value starts at the purchase price and grows no more than 2% per year, regardless of market value. - Used by the county to calculate annual property taxes (~1.1% of assessed value typically). - Can be much lower than market value for long-time owners.

Example: same home now worth $1.5M but assessed at $480K under Prop 13. Property tax: ~$5,300/year (not $16,500/year).

These numbers are completely independent. Cost basis matters when you sell (for capital gains). Assessed value matters every year (for property tax). They have nothing to do with each other.

For inherited properties, both numbers typically reset: - Cost basis steps up to date-of-death value (good — reduces capital gains). - Assessed value reassesses to market (bad — increases property tax) UNLESS the Prop 19 primary-residence exception applies.

What I've written here is general. Your specific timeline, equity position, and the exact neighborhood pocket your home is in all change the math. For a complete picture, call or text (510) 504-0402, reach my 24/7 line at (406) 205-9003, or email roger@grubb.net. The first 20 minutes are free and there's no pitch.