Arizona’s Proposition 117 is often described as a “property tax cap,” but that shorthand is misleading. It does not cap your tax bill. It caps the annual growth of the taxable value used to calculate the bill. That distinction sounds technical, yet it has real consequences for underwriting, long-run NOI stability, owner behavior, and even how local governments finance growth in a water- and heat-constrained state.
In 2012, Arizona voters approved Proposition 117, amending the state constitution to limit annual increases in the taxable property value for locally assessed real property to 5% and to make that single “Limited Property Value” (LPV) the basis for calculating property taxes. It took effect beginning with tax year 2015, per Arizona legislative implementation.
Arizona still calculates a market-oriented estimate called Full Cash Value (FCV). FCV is typically the appealable value and is intended to reflect statutory or market value. But FCV is not what most property taxes are computed from. LPV is.
That is the structural shift: Prop 117 locks taxable growth to LPV, not FCV.
The two values you must separate: FCV vs LPV
Every year, the county assessor estimates FCV, which approximates market value under statutory definitions. That number can move sharply in hot cycles.
LPV, however, is the taxable value used to compute property taxes for most locally assessed property. For properties with no major qualifying change, LPV generally increases by no more than 5% per year, and it cannot exceed the current year FCV.
So in a fast-appreciation cycle, FCV may jump 15–25%, but LPV may only move 5%. That gap between FCV and LPV is where Prop 117 lives.
