Understanding Limited Property Value (LPV)

What is Limited Property Value?
In Arizona, property taxes are usually based on a property’s Limited Property Value (LPV) rather than its market value.

Think of LPV as a value that helps prevent large jumps in property taxes from one year to the next.

A property’s LPV can never be higher than its Full Cash Value (FCV), which is the Assessor’s estimate of the property’s market value.

Two Ways LPV Is Calculated
Arizona law provides two methods for calculating LPV:

  • Rule A
  • Rule B
Most properties use Rule A.

Rule A: The Standard Method
Rule A applies to most properties that have not experienced major changes.

Under Rule A, the LPV can increase by up to 5% per year, as long as it does not become higher than the property’s Full Cash Value.

Example Imagine your property’s LPV last year was $100,000.

Under Rule A:

  • Last Year LPV: $100,000
  • This Year LPV: $105,000
Even if the market value of your property goes up or down, the LPV generally increases by only 5% each year.

This helps create stability and predictability for property owners.

Rule B: When Major Changes Occur
Rule B is used when a statutory trigger applies to a property.

Some examples include:

  • New construction or major improvements
  • Demolition of buildings
  • Property splits or lot combinations
  • A change in how the property is used
  • Loss of certain special valuation programs
When one of these events occurs, Arizona law requires the property’s LPV to be recalculated.

How Rule B Works
Instead of using the 5% increase from Rule A, Rule B compares the property to similar properties.

The Assessor calculates a percentage based on other properties in the same classification.

The new LPV is determined by multiplying the property’s Full Cash Value by that percentage.

Important
A Rule B calculation does not always increase the LPV.

Sometimes Rule B results in:

  • A lower LPV
  • A higher LPV
  • An LPV that is similar to the previous value
Every property is different.

Example of a Lower Rule B Value
Suppose a property has:

  • Previous Year Full Cash Value: $496,200
  • Previous Year Limited Property Value: $337,800
  • Current Year Full Cash Value: $485,600
  • Rule B Percentage: 57%
The new LPV would be:

$485,600 × 57% = $276,792

In this example, the Rule B value is lower than the property’s previous year LPV.

Example of a Higher Rule B Value
Suppose another property has:

  • Previous Year Full Cash Value: $233,600
  • Previous Year Limited Property Value: $55,906
  • Current Year Full Cash Value: $243,800
  • Rule B Percentage: 57%
The new LPV would be:

$243,800 × 57% = $138,966 In this example, the Rule B value is higher than the property’s previous year LPV.

This shows that Rule B can either increase or decrease a property’s LPV depending on the circumstances.

How Assessed Values Are Calculated
The final step in the valuation process is calculating the property’s Assessed Value.

The Assessed Value is determined by multiplying the LPV by the assessment ratio set by Arizona law.

Example
If a property has:

  • LPV: $58,702
  • Assessment Ratio: 10%
Then:

$58,702 × 10% = $5,870

The Assessed Value of $5,870 is used by the Treasurer when calculating property taxes.

Key Takeaways

  • Most properties use Rule A.
  • Rule A generally limits LPV growth to 5% per year.
  • Rule B is used when significant changes occur to a property.
  • Rule B compares a property to similar properties and may increase or decrease the LPV.
  • Property taxes are generally based on LPV, not Full Cash Value.
  • LPV can never be higher than Full Cash Value.
Understanding the difference between Full Cash Value and Limited Property Value can help explain why a property’s taxable value may change differently than its market value.

You can also find more details and historical information on Rule B and Assessment Ratio information if you are interested.