The Mills Act is a complicated program. I recommend hiring a Mills Act Preparer to prepare your application. Consult with a Mills Act Preparer about whether your home qualifies for the program, and how much it costs to have your Mills Act prepared. I know of some people who have done their own application- though I think that most will not have the inclination to research up on the process and DIY, when hiring a Preparer is quite affordable, in comparison with the reduced taxes from even you very first year under the Mills Act.
The Mills Act program was created by the State of California to preserve Historical Properties. The Mills Act provides property tax reductions by as much as 60% or, in some cases more! (I have seen a 90% annual tax savings once). The Act is named for the author of the legislation — historian, statesman, and writer Jim Mills. To qualify for the Act your property may be either:
1) an existing City of Los Angeles Historic-Cultural Monument
2) or A Contributing Structure in a Historic Preservation Overlay Zone (HPOZ)
The city of Los Angeles has 24 HPOZ with many more under consideration. Properties within an HPOZ are divided into contributing and noncontributing structures. The average percentage of dwellings within an HPOZ that is considered contributing is 65.8%. The percentage range of contributing dwellings within individual HPOZs can vary from a high of 98.6% in the South Carthay HPOZ to a low of 48.5% in the HighlandPark HPOZ.
If you live in an HPOZ, there is a great chance you qualify automatically for the Act by being a contributing Structure, so long as your assessed value is below $1,500,000 for Single Family Residential and $3,000,000 for multifamily.
It is important to hurry and complete your contract if you are considering to apply for the program because the city of Los Angeles is capping the amount of property tax revenue it will lose from Mills Act contracts at $1,000,000. I can tell you that we are somewhere near $750,000 at the moment, and at the current rate of applications, Los Angeles will reach its Cap- so don’t wait, if you don’t get your application finished in the next two years, the opportunity to participate in this program may be gone.
In LA, if your Single-Family dwellings has an assessed value above $1,500,000, or if your Multi-Family/Commercial/Industrial Building is above $3,000,000- then you will need to apply for an exemption with the Cultural Heritage Commission.
Your Mills Act preparer can handle filing your exemption form along with your application. When it gets into the details of the exemption process I must admit I am a bit lacking, since last year there were some changes introduced into the process. If your property is above the $1.5M threshold send me an email firstname.lastname@example.org and I’ll put you in touch with my Mills Act preparer who will be able to explain the entire exemption process to you in detail.
Mills Act contracts are 10 year rolling contracts, meaning a contract automatically renews each year on its anniversary date and a new 10 year agreement becomes effective. This means you have to give 10 years notice to opt out of the Mills Act. You do this by giving notice of non-renewal. Canceling and going through the process of non renewal are different. Note: The cost of canceling the contract is immense- 12.5% of the assessed value of the property, you should avoid canceling your contract.
Mills Act Contracts are selling points for homes. Mills Act contracts transfer with the property to the new owner when the property is sold. A property that has low property tax because it has a Mills Act contract makes it more attractive to buyers.
The responsibilities you have as an owner of a Property with a contract are that you agree to restore, maintain, and protect the property in accordance with specific historic preservation standards and conditions identified in the contract. Periodic inspections by City and County officials ensure proper maintenance of the property. The city conducts a drive by inspection once a year- unless the city has reason to believe you are in violation of the contract, in which case the city may conduct a full inspection. The City may impose penalties for breach of contract or failure to protect the historic property. The contract is transferred to new owners if the property is sold, and is binding to all successive owners.
The contract changes your assessed value from a comparable sales method of valuation to an income based method of valuation- which leads to the large tax savings.
Single Family Residence
Current assessed valuation = $ 1,400,000
Current taxes = $ 17,500
($ 1,400,000 x 0.0125)
Recalculation Using Mills Act
Gross income = $ 74,400
($ 6,200 X 12 mo.)
Less expenses = $ 8,000
(insurance, repairs, utilities)
Net income = $ 64,400
Capitalization rate = 13.66%
Interest component at 6.75%
Historic property risk component at 4%
Amortization component at 1.67%
Property tax component at 1.24%
New valuation = $486,090
New taxes = $ 6,076
($ 486,090 x 0.0125)
TOTAL SAVINGS OF $ 11,423 annually or 66%
Mills Act Application Link