How does prop 13 work?

[Tyler D.]

I'm interested in buying an investment property in California, largely due to the advantages of prop 13. As I understand it, it caps property tax raises to 2% per year, which is hugely beneficial in areas that appreciate at much higher rates.

I'm curious on the details of prop 13, for example how it works with renovations. If I were to buy a beater for half price, then fix it up to its original value, would the property taxes be reassessed, or remain locked at the purchase rate? 

Also, what if you bought at the top of the market, right before a downturn in prices? Say there is a 50% downturn in prices, would my property taxes be locked in at the lower value, then only able to be raised 2% from there, or would it keep its baseline set on my purchase price?

[Kyle J.]

There are actually two important property tax related propositions in California....Proposition 13 (the one everyone knows about) and Proposition 8 (the one very few know about).   

Prop 13 limits how much our property taxes can go up each year (2% per year max).  However, Prop 8 actually does allow for the temporary reduction of our property taxes during a downtown.  (When they go back up after a Prop 8 decline in value, they're not restricted by the 2% per year cap. Just FYI.)  

Anyway, here's some reading on these topics if anyone is interested:

State Board of Equalization: Your Property Tax Bill May Be Going Up More than the Normal 2 Percent

Stanislaus County: How property values are assessed

Filing Appeals To Reduce Property Taxes When Values Drop