Real Property Tax Breaks Under the Mills Act

Many homeowners and homebuyers are attracted to historic homes due to their charm, majesty, and/ or history. Some areas, such as Professorville in Palo Alto, are known for their high concentrations of historic homes. Although the buyers and owners of these homes generally realize that they face significant restrictions when it comes to remodeling or rebuilding, many overlook one significant property tax opportunity: the Mills Act.

The Mills Act offers a substantial reduction in property taxes for owners of “qualified historical properties,” provided they agree to preserve, restore, rehabilitate, and maintain the historical and architectural character of their properties. The legislative intent was to reduce the property tax so that owners of historic homes could use that savings to maintain the historic character of the house.

In order to qualify, the property must be privately owned and listed on any official federal, state, county, or city register. However, being listed on a register is not enough. The program is administered at the local government level, and there are limitations to the number of homes that can qualify. There is also a detailed application procedure.

If the property is already designated as a “qualified historical property,” then the procedure is fairly straight forward:

  1. The applicant submits a Mills Act application, including a plan for preservation, to the county’s Planning Office.
  2. The Historical Heritage Commission evaluates the application.
  3. If the Commission recommends approval to the Board of Supervisors, the Office of the County Counsel prepares a preservation contract that incorporates the standards and conditions stipulated by the Commission and agreed upon by the property owner.
  4. The recommendation of the Commission and the preservation contract are then presented to the Board for approval.
  5. If the Board confirms the findings of the Commission, the preservation contract will be approved and formally executed between the property owner and the county.
  6. The Assessor’s Office will then make the appropriate changes to the assessment roll. This could result in a tax savings of over 50 percent per year, although the savings will be much less if the property has been owned for a long time and the owners benefit from Prop. 13.

Once approved, the taxpayer enters into a 10-year contract with automatic one-year extensions. The contract will outline the steps for preservation and restoration and will provide for access and inspection to ensure compliance. Although these restrictions are binding on future owners for the period of the contract, the owner can take steps to terminate the arrangement once the contract period is up.

The state of California offers similar tax breaks for owners of farmland and open space land under the Williamson Act (technically known as the California Land Conservation Act of 1965). We will address the benefits and burdens of the Williamson Act in the next edition of The DeLeon Insight.