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taxes (based upon the annual tax rate in effect), and (iv) a component for amortization of the improvements made under the Mills Act contract. While all of this may sound complicated, the following is an example of a Restricted Capitalization Rate calculation:
• Interest Component Per State Board of Equalization +4.25%
• Level of Risk Component (Assume Owner Occupied) +4.00%
• Tax Rate +1. 200129%
• Amortization (Assumes 40-Year Remaining Life – Allocate Improvements at 60% of Property Market Value or 1.5% Amortized Per Year over 40-Years) +1.5%
• Total Restricted Capitalization Rate 10.950129%
The Restricted Value is then determined by dividing the net operating income (NOI) by the Restricted Capitalization Rate above. Net operating income is calculated by deducting the market vacancy rate and operating expenses from the “Gross Potential Income” (GPI) of the parcel.
The current market value is based upon comparable property sales transactions, and the factored base year value is the assessed value under Proposition 13.
Qualified Historical Property
Qualified historic property is typically a property listed on any federal, state, county, or city register, including the National Register of Historic Places, California Register of Historical Resources, California Historical Landmarks, State Points of Historical Interest, and locally designated landmarks. Owner-occupied family residences and income- producing commercial properties may also qualify for the Mills Act program, subject to local regulations. The Mills Act program is especially beneficial for recent buyers of historic properties and for current owners of historic buildings who have made major improvements to their properties.
Jurisdictions That Have Established Mills Act Programs
California’s four largest cities (Los Angeles, San Diego, San Francisco, and San Jose) as well approximately 100 other city and county governments have established Mills Act programs. Generally, information about local Mills Act programs such as local eligibility criteria, application procedures, and contract terms are available on the local city or county websites, or by calling the local government’s planning or community development departments. The State’s Office of Historical Preservation also maintains a list of local governments participating in the Mills Act program as well as has copies of Mills Act ordinances, resolutions, and contracts that have been adopted.
Frequently Asked Questions About the Mills Act
Q: What is the Mills Act Program?
A: The Mills Act provides economic incentives to owners of qualified historical properties to encourage the preservation of residential neighborhoods and the revitalization of downtown commercial districts. The Mills Act is the single most important economic incentive program in California for the restoration and preservation of qualified historic buildings by private property owners. First enacted in 1972, the Mills Act legislation grants participating local governments (cities and counties) the authority to enter into contracts with owners of qualified historic properties who actively participate in the restoration and maintenance of their historic properties while receiving property tax relief. California State Codes Relating to the Mills Act include the following:
California Government Code, Article 12, Sections 50280 - 50290
California Revenue and Taxation Code, Article 1.9, Sections 439 – 439.4
Q: My property or a property I am considering buying is already under a Mills Act contract. What does that mean to me as a property owner?
A: Mills Act contracts are for 10 years initially with automatic annual extensions and stay with the property when sold or otherwise transferred. Subsequent owners are bound by the contract and have the same rights and obligations as the original owner who entered into the contract. Because the local government and the property owner negotiate other specific terms of the contract, you need to contact your local government to determine the rights and obligations a Mills Act contract creates.
Q: How are tax assessments determined for properties under the Mills Act?
A: The State Board of Equalization has provided guidelines for county assessors for use in assessing properties under the Mills Act.
Q: Does my property qualify for the Mills Act Program?
A: First, find out if your local government participates in the program. Then, contact our local government or go to its website to see what the local criteria are, and what the process is for applying.
Q: If my local government does not currently have a Mills Act program, what should I do?
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