Real Property Tax Breaks under the Williamson Act

DeLeon Insight – January 1, 2016

Michael Repka Esq., DeLeon Realty CEO, LLM (Taxation)

For most California homeowners, their annual property tax is based on one percent of the amount they paid for the property, and increased by up to two percent per year. Additionally, they pay for debt service on bonds issued to benefit the property, provided that this amount does not exceed 0.25 percent of the value of the property.

There is, however, an often overlooked way for people to reduce the amount of property tax. Much like the Mills Act encourages people to preserve historic structures (see “Real Property Tax Breaks Under the Mills Act,” The DeLeon Insight, November 2015), the Williamson Act encourages landowners to maintain land for agricultural or related open-space use. In return for the landowner’s commitment to maintain the property as agricultural land or open space for a 10-year period, the landowner receives substantially reduced property tax assessments that are based upon generated income rather than potential market value of the property.

The Williamson Act, which is technically titled the California Land Conservation Act (the “Act”), was enacted to deal with California’s problems with population growth, and the resultant surge in building, that occurred after GIs returned from World War II. The fear was that the California building boom would eliminate valuable farmland and open space that so many people love.

Although there are many nuances that must be considered, the Act basically enables private landowners to contract with local governments to voluntarily restrict their land to agricultural and compatible open-space uses in return for lower property taxes. The minimum term for a contract is 10 years, but some jurisdictions extend the term up to 20 years. The contract term automatically renews every year on each anniversary date of the contract.

If either the landowner or local government wants out of the contract, they may exit by initiating the process of nonrenewal. Under this process, the remaining term of the contract is allowed to lapse while the property taxes on that property gradually increase until the property tax reaches normal (i.e., non-restricted) levels upon termination of the contract.

Additionally, under some circumstances, a contract may be cancelled (“Contract Cancellation”) without going through the nonrenewal process. Contract Cancellation involves a comprehensive review and approval process. When approved, the landowner must pay a onetime fee of 12.5 percent of the full market value of the property.

Like the Mills Act, the Williamson Act provides taxpayers with significant benefits, but with equally significant restrictions. The key is to discuss your intended use of the property, as well as your holding horizon, with a qualified real estate agent or tax attorney so as to develop the right strategy for your situation.