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Proposition 3 - Frequently Asked Questions

  1. What is Proposition 3?
  2. How does the proposition work?

Property Qualifications

  1. What are the qualifying conditions of the original property?
  2. What are the qualifying conditions of the replacement property?
  3. My property was under a threat of condemnation by a redevelopment agency that wanted me to sell my property to them so they could sell it to a specific third (private) party. The agency indicated that if we did not reach an agreement, they would recommend to the board of the agency that the agency take formal action to commence acquisition proceedings pursuant to the power of eminent domain. Instead, I sold my property to a private company who purchased it on behalf of that specific (third) party. Will I be able to transfer my original property's base year value to a replacement property?

Qualifying Replacement Property

  1. Must my replacement property be located in the same county as the property taken?
  2. My commercial property was just acquired by a public retirement system for investment purposes. May I build a new commercial building on a parcel I purchased two years ago as my replacement property?
  3. Is the purchase of an undivided one-half interest in a replacement property for my property taken eligible for tax relief under Proposition 3?
  4. I replaced my home with a combination dwelling and commercial property. How much relief am I entitled to?
  5. My property, a combination dwelling and commercial property, is replaced with a home. How much relief am I entitled to?
  6. My property, a combination dwelling and commercial property, was replaced with a home; two years later I also acquired a comparable replacement Category B property. How much relief am I entitled to?
  7. My two brothers and I, equal tenants-in-common, were displaced from our home with a market value of $330,000 and an adjusted base year value of $180,000. How much relief can each of us carry forward?
  8. Our 2,000 square foot home was replaced with a 1,200 square foot home. We then added an additional 1,000 square feet of new construction to make it comparable to our original home. How much relief are we entitled to?
  9. My grandmother was displaced from her home so that a school could be built upon her property. She moved into an assisted living facility for health reasons. In order to help pay her new rent, she bought another house to use as a rental. Can she get Proposition 3 relief even though she won't be living in the home, and, if so, how much relief will she be entitled to?
  10. May the entire base year value of the property taken, consisting of both land and improvements, be transferred solely to land or solely to improvements?
  11. May replacement improvements be made on two or more different sites? I would like to transfer portions of the base year value of my property taken to multiple replacement properties.
  12. My commercial building was taken by the city as part of its downtown rejuvenation plan. May I acquire an ownership interest in a legal entity which, directly or indirectly, owns real property as my replacement property?

Qualifying Claimants

  1. May a limited liability corporation (LLC) benefit from Proposition 3 property tax relief?
  2. My brother and I, equal tenants-in-common, were displaced from our home. I purchased another comparable single-family home and he contributed his share of the purchase price to a limited partnership which owns a home that is comparable replacement property. How much relief are we entitled to?
  3. My business partner and I each acquired a comparable replacement property after the partnership was displaced from a commercial property. Are we both entitled to relief?

Replacement Value

  1. How will the new base year value of the replacement property be calculated?
  2. When a property acquired by a governmental entity has an assessed value below its adjusted base year value due to a decline in market value (Proposition 8), which value should be transferred – the Proposition 8 value or the property's Proposition 13 adjusted base year value?
  3. The market value of my home, taken for freeway expansion, exceeded the value of my replacement home by $150,000. Can I transfer this excess base year value to another single-family home that will be an investment property?
  4. I received Proposition 3 benefits on a replacement commercial property and assumed its triple net lease upon purchase. The purchase price was far more than the transferred base year value and the tenant is receiving the benefits. I believe property taxes were even reduced after I bought the property. If there were no Proposition 3 benefits, the tenant's taxes would have increased substantially. It seems as if I should be compensated for providing the tenant with this tax benefit.

Claim Filling

  1. How do I file for Proposition 3 tax relief?
  2. What is the time period for filing a claim under Proposition 3?
  3. I sold my property under eminent domain proceedings but I was able to lease the property back for one year. When does my four-year period start in finding a replacement property?
  4. Do I need to provide the county assessor with documentation that my property qualifies?
  1. What is Proposition 3?

    Proposition 3 is a constitutional amendment passed in 1982 that provides property tax relief to an owner (individual or legal entity) whose property has been taken by eminent domain proceedings, acquisition by a public entity, or governmental action resulting in a judgment of inverse condemnation. Section 68 of the Revenue and Taxation Code provides the statutory authority to implement Proposition 3. Rule 462.500 interprets, implements and makes specific Section 68.

  2. How does the proposition work?

    When a taxpayer purchases or constructs a replacement property as a result of his/her original property being taken by governmental action, under certain conditions, the adjusted base year value of the original property may be transferred to the replacement property. If a transaction qualifies, Proposition 3 provides an exclusion from what would otherwise be a full market value reassessment of the replacement property.

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Property Qualifications

  1. What are the qualifying conditions of the original property?
    • You must be the owner(s) of real property that has been taken by governmental action.
    • You must have been displaced from the original property by governmental action.
    • The original property must be located in California.
    • The request for tax relief must be received in a timely manner. A request for relief is considered timely if made within four years of the following dates:
      • For property acquired by eminent domain, the date the final order of condemnation is recorded or the date the taxpayer vacates the property taken, whichever is later.
      • For property acquired by a public entity by purchase or exchange, the date of conveyance or the date the taxpayer vacates the property taken, whichever is later.
      • For property taken by inverse condemnation, the date the judgment of inverse condemnation becomes final or the date the taxpayer vacates the property taken, whichever is later.
  2. What are the qualifying conditions of the replacement property?
    • The replacement property must be acquired before a request is made to transfer the base year value.
    • The owner(s) of property taken must obtain title to comparable replacement property. The acquisition of an ownership interest in a legal entity which, directly or indirectly, owns real property is not an acquisition of comparable property.
    • The replacement property must be acquired or newly constructed after the earliest of the following dates:
      • The date the initial written offer is made for the property taken by the acquiring entity.
      • The date the acquiring entity takes final action to approve a project which results in an offer for, or the acquisition of, the property taken.
      • The date a Notice of Determination, Notice of Exemption, or other similar notice, is recorded by the public entity acquiring the taxpayer's property and the public project has been approved.
      • The date, as declared by the court, that the property was taken.

    Property acquired or newly constructed prior to these dates is not eligible for relief. However, new construction on land that is ineligible due to the fact that the land was acquired prior to these dates may be eligible for relief if such new construction is completed on or after the earliest of these dates.

    • The replacement and displaced properties must be comparable in size, utility, and function.
      • A replacement property is considered comparable in size when it will be used in the same way as the displaced property, and its full cash value does not exceed 120 percent of the award or purchase price paid for the original property.
      • A replacement property is considered comparable in function and utility if it is, or is intended to be, used in the same manner as the property taken and is subject to similar governmental restrictions, for example, zoning. To be considered similar in function and utility, the property taken and the replacement property both must fall into the same category:
    Category A: Single-family residence or duplex
    Category B: Commercial, investment, income, or vacant property
    Category C: Agricultural property

    If the property taken is a residence or duplex that is rented, it can be replaced with either another singe-family residence under Category A or with a Category B property. However, before being able to replace the property with a Category B property, sufficient proof must be provided to the county assessor showing that the property taken was used as income property.

    • To the extent that the replacement property, or any portion thereof, is not similar in size, utility, and function, the property, or portion thereof, will be considered to have undergone a change in ownership and will be reappraised.

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  3. My property was under a threat of condemnation by a redevelopment agency that wanted me to sell my property to them so they could sell it to a specific third (private) party. The agency indicated that if we did not reach an agreement, they would recommend to the board of the agency that the agency take formal action to commence acquisition proceedings pursuant to the power of eminent domain. Instead, I sold my property to a private company who purchased it on behalf of that specific (third) party. Will I be able to transfer my original property's base year value to a replacement property?

    No. A sale directly to a private party under threat of condemnation by a governmental entity is not displacement from property by eminent domain proceedings, by acquisition by a public entity, or by governmental action which results in a judgment of inverse condemnation. Additionally, you will not have the required documents from your sale to show your property was sold under these conditions. (See question #28)

Qualifying Replacement Property

  1. Must my replacement property be located in the same county as the property taken?

    No. The only location restriction of the displaced and the replacement properties are that they both must be located in California.

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  2. My commercial property was just acquired by a public retirement system for investment purposes. May I build a new commercial building on a parcel I purchased two years ago as my replacement property?

    The land you purchased prior to your property being taken would not qualify for the base year value transfer since it was acquired prior to your displacement from the original property; however, since the new construction will be completed after the date of displacement, you may transfer your entire base year value to the new construction as long as the new improvement's full cash value does not exceed 120 percent of the purchase price paid for the property taken. The new construction must be completed, however, within four years of the date of conveyance or the date you vacate the property taken, whichever is later, as discussed in question 3 above.

  3. Is the purchase of an undivided one-half interest in a replacement property for my property taken eligible for tax relief under Proposition 3?

    Yes, the purchase of a partial interest in real property is eligible for property tax relief. However, the purchase of a partial interest in a legal entity that holds real property is not eligible for any relief.

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  4. I replaced my home with a combination dwelling and commercial property. How much relief am I entitled to?

    Relief can only be applied to the portion of the property that is of similar function and utility as the taken property. Here, under your situation, the property taken falls under Category A, but the replacement property falls under both Category A and Category B. As such, relief may be granted only to the residential portion of the property falling under Category A; the commercial (Category B) portion will be considered to have undergone a change in ownership and will be reappraised at fair market value.

  5. My property, a combination dwelling and commercial property, is replaced with a home. How much relief am I entitled to?

    As stated in question 9, relief can only be applied to the portion of the property that is of similar function and utility as the property taken. Thus, only the dwelling (Category A) portion of the property taken will be considered in determining the comparability and the amount of property tax relief granted. The right to relief on the commercial (Category B) portion of the property is waived unless comparable replacement Category B property is timely acquired and a timely request is made.

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  6. My property, a combination dwelling and commercial property, was replaced with a home; two years later I also acquired a comparable replacement Category B property. How much relief am I entitled to?

    Relief will be granted on both the Category A and Category B properties based on the percentages of the adjusted base year value of the taken property that correspond to each of the replacement properties.

  7. My two brothers and I, equal tenants-in-common, were displaced from our home with a market value of $330,000 and an adjusted base year value of $180,000. How much relief can each of us carry forward?

    Each party can carry forward one-third of the base year value of $180,000 ($60,000) to a replacement dwelling. Any excess value of a replacement property will be reappraised at market value.

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  8. Our 2,000 square foot home was replaced with a 1,200 square foot home. We then added an additional 1,000 square feet of new construction to make it comparable to our original home. How much relief are we entitled to?

    Property comparability with regards to size is associated with the value of your property -- not upon the square footage or other physical characteristics of your home. Property is similar in size if its full cash value does not exceed 120 percent of the award or purchase price of the property taken. The value of the new construction will be considered in determining the overall market value of the replacement property. Any portion of the total value of the replacement property over the 120 percent threshold will be reappraised at market value.

  9. My grandmother was displaced from her home so that a school could be built upon her property. She moved into an assisted living facility for health reasons. In order to help pay her new rent, she bought another house to use as a rental. Can she get Proposition 3 relief even though she won't be living in the home, and, if so, how much relief will she be entitled to?

    She does not need to be a resident of the replacement property to be eligible for Proposition 3 relief. The replacement rental property qualifies for relief because it is a Category A property replacing another Category A property.

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  10. May the entire base year value of the property taken, consisting of both land and improvements, be transferred solely to land or solely to improvements?

    Yes. There is no prohibition or restriction on allocation of the base year values. You are allowed to transfer the base year value of a property taken that consists of land and improvements to a replacement property consisting of only improvements or only land.

  11. May replacement improvements be made on two or more different sites? I would like to transfer portions of the base year value of my property taken to multiple replacement properties.

    Yes. Neither section 68 nor Rule 462.500 limits the availability of relief to a single replacement property. Where multiple replacement properties qualify, the 120 percent threshold applies to the aggregated full cash value of the properties.

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  12. My commercial building was taken by the city as part of its downtown rejuvenation plan. May I acquire an ownership interest in a legal entity which, directly or indirectly, owns real property as my replacement property?

    No. Acquisition of an ownership interest in a legal entity is not an acquisition of comparable property.

Qualifying Claimants

  1. May a limited liability corporation (LLC) benefit from Proposition 3 property tax relief?

    Yes, the fee owner or life estate owner of the real property taken may be an individual, a partnership, a corporation, any other legal entity, or a combination thereof.

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  2. My brother and I, equal tenants-in-common, were displaced from our home. I purchased another comparable single-family home and he contributed his share of the purchase price to a limited partnership which owns a home that is comparable replacement property. How much relief are we entitled to?

    You are entitled to relief limited to 120 percent of one-half of the award or purchase price of the property taken. Your brother will be entitled to no relief since his portion was used to contribute to a legal entity rather than to a comparable property. The acquisition of an ownership interest in a legal entity which, directly or indirectly, owns real property is not an acquisition of comparable property.

  3. My business partner and I each acquired a comparable replacement property after the partnership was displaced from a commercial property. Are we both entitled to relief?

    No. Since the title to the replacement and original properties is not held in the same manner and name, both purchases by you and your business partner constitute a change in ownership, and there will be a reappraisal of both replacement properties at their fair market value. To receive Proposition 3 tax relief, both replacement properties must be held in the name of the partnership.

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Replacement Value

  1. How will the new base year value of the replacement property be calculated?

    The assessor will determine the base year value of the replacement property by comparing the award or purchase price paid by the governmental entity for the property taken with the full cash value of the replacement property:

    1. If the full cash value of the replacement property does not exceed 120 percent of the award or purchase price of the property taken, then the adjusted base year value of the property taken becomes the replacement property's base year value, regardless of the allocation between land and improvements.
    2. If the full cash value of the replacement property exceeds the 120 percent level, then the amount of full cash value in excess of 120 percent will be added to the adjusted base year value of the property taken. The sum of these amounts becomes the base year value of the replacement property.
    3. If the full cash value of the replacement property is less than the adjusted base year value of the property taken, then that lower value becomes the base year value of the replacement property.
    4. If an exchange occurs for which no award or purchase price is paid by the acquiring entity for the property taken, then the county assessor for each county in which the properties are located must determine the full cash value of both the property taken and the replacement property. Once the full cash values of both properties are determined, then the procedures of 1-3 set forth above will be applied to determine the replacement property’s base year value.

  2. When a property acquired by a governmental entity has an assessed value below its adjusted base year value due to a decline in market value (Proposition 8), which value should be transferred – the Proposition 8 value or the property's Proposition 13 adjusted base year value?

    Section 68 states that the replacement property's base year value shall be the lower of:

    1. The fair market value of the replacement property; or
    2. The sum of the adjusted base year value of the displaced property plus the amount, if any, by which the full cash value of the replacement property exceeds 120 percent of the amount received for the displaced property

    Thus, the Proposition 8 value would never be transferred to the replacement property, and the Proposition 13 adjusted base year value could be transferred but only as part of the formula amount described in section 68, and only if it were lower than the fair market value of the replacement property. In a Proposition 8 situation as described, if the replacement property is in the same county as the displaced property, then the fair market value of the replacement property in most cases will have a lower value than the displaced property.

  3. The market value of my home, taken for freeway expansion, exceeded the value of my replacement home by $150,000. Can I transfer this excess base year value to another single-family home that will be an investment property?

    Yes. The replacement property can consist of more than one appraisal unit, with the value of the displaced property being allocated to the different replacement units for purposes of this exclusion. Each of the replacement properties, however, must meet the other requirements of section 68 (similar function, timely filing, etc.) to qualify.

  4. I received Proposition 3 benefits on a replacement commercial property and assumed its triple net lease upon purchase. The purchase price was far more than the transferred base year value and the tenant is receiving the benefits. I believe property taxes were even reduced after I bought the property. If there were no Proposition 3 benefits, the tenant's taxes would have increased substantially. It seems as if I should be compensated for providing the tenant with this tax benefit.

    The benefit of Proposition 3 is the ability to transfer the adjusted base year value of an original property to a comparable replacement property. You received this benefit, and then transferred, by contract, the resulting tax savings to your tenant. Compensation for your tenant's decrease in taxes is a contractual matter between you and your tenant.

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Claim Filing

  1. How do I file for Proposition 3 tax relief?

    An application must be filed with your county assessor using the form: Claim for Base Year Value Transfer – Acquisition by Public Entity (BOE-68). This form may be obtained from your county assessor's office or you may check your county's website as some counties provide a downloadable form. Your county's website may be accessed by clicking on the name of your county via the following link :/proptaxes/assessors.htm.

  2. What is the time period for filing a claim under Proposition 3?

    You have four years from: (1) the date the final order of condemnation is recorded when property is acquired by eminent domain; (2) the date of conveyance when property is acquired by a public entity by purchase or exchange; (3) the date the judgment of inverse condemnation becomes final when property is acquired by inverse condemnation; or (4) the date you vacate the property taken, whichever is later.

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  3. I sold my property under eminent domain proceedings, but I was able to lease the property back for one year. When does my four-year period start in finding a replacement property?

    For property acquired by a public entity by purchase or exchange, your request for the base year transfer shall be deemed timely if made within four years of the date the condemnation is recorded or the date the taxpayer vacates the replaced property, whichever is later. In your case, the four-year statutory filing period will begin the date you vacate the premises at the end of your one-year lease of the property.

  4. Do I need to provide the county assessor with documentation that my property qualifies?

    Yes. The applicant must provide proof of actual displacement. A copy of any one of the following documents will be considered by the assessor as such proof:

    1. A certified recorded copy of the final order of condemnation, or, if a final order has not been issued, a certified recorded copy of the order for possession showing the effective date that the acquiring entity is authorized to take possession of the property taken.
    2. A copy of the recorded deed showing acquisition by the public entity.
    3. A certified copy of the final judgment of inverse condemnation.
    4. A certified copy of a document that clearly indicates the name of the acquiring agency, the date condemnation proceedings began, and the date of possession by the acquiring agency.
    5. Any other data requested by the county assessor.

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