Mills Act

**ADVISORY** The Mills Act is a complicated program- it can get confusing! I think more people haven’t signed up for Mills Act Contracts because they don’t understand what the program does. If you start feeling lost, give me a call at 310-388-7332 and I can answer most of your questions and/or refer you to a great Mills Act preparer to answer your questions and take care of the application process for you. EASY!

The Mills Act is a program enacted through legislation for the preservation of Historical Properties in LA. The Mills Act provides rehabilitation tax credits and property tax reductions by as much as 60% or in some cases more! (I have heard of 90% annual tax savings- Wowza). The Act is named for the author of the legislation — historian, statesman, and writer Jim Mills. To qualify for the Mills Act your property can 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 65% chance you qualify for the Mills Act by being a contributing Structure. If you would like me to check to see if your property is a contributing structure in your HPOZ call James at 310-388-7332 or email me at jamescampbell@coldwellbanker.com

To read more about each of Los Angeles’ 24 HPOZ, visit:

http://www.preservation.lacity.org/hpoz/la

….A Twist:

In LA, for Single-Family dwellings with an assessed value above $1,500,000, and above $3,000,000 for Multi-Family residential, commercial or industrial buildings, you will need to apply for an exemption with the Cultural Heritage Commission.  From what my Mills Act preparer has told me, the exemption is easy to do (its a 1 page form) and 99% of the time they will grant it.

Your Mills Act preparer can handle your exemption form along with your application.

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 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 Mills Act 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 Mills Act 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.

Hypothetical Scenario:

Single Family Residence

Current assessed  valuation = $ 250,000

Current taxes = $ 3,125

($ 250,000 x 0.0125)

Recalculation Using Mills Act

Assessment Method:

Gross income = $ 14,400

($ 1,200 X 12 mo.)

Less expenses = $ 2,000

(insurance, repairs, utilities)

Net income = $ 12,400

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%

Total 13.66%

New valuation = $90,776

($12,400)

(0.1366)

New taxes = $ 1,135

($ 90,776 x 0.0125)

TOTAL SAVINGS OF $ 1,990 or 64%

If you would like to find out what your property’s rent would be contact James Campbell at 310-388-7332 or email jamescampbell@coldwellbanker.com

New for 2009

Properties seeking an Exemption from the Valuation Limits of $1.5 million for Single-Family Residences and $3 million for Multi-family/Commercial Properties are required to prepare an Historic Structure Report.  The report shall follow the methodology outlined in Preservation Brief 43 – The Preparation and Use of Historic Structure Reports published by the National Park Service (see http://www.nps.gov/history/hps/TPS/briefs/brief43.htm).

Additional Resources

Lambert Giessinger of the Department of City Planning’s Office of Historic Resources at (213) 978-1183. The 2009 applications is available at this link: 2009 Mills Act Application.

Note for Mills Act Application: Mac users must download the application to the computer and then open the cover page to access the guide.

http://www.laconservancy.org/initiatives/neighborhood_hpoz.php4

http://www.preservation.lacity.org/mills-act

http://www.boe.ca.gov/proptaxes/faqs/faqs_mills_act.htm

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