The Mills Act
Maybe you haven't put a lot of time into thinking about buying historical property in the state of California. What if you knew that you could get significant tax breaks from the state for 10 years if you did?
The Mills Act is little known by many people, yet it's been in existence since 1972 when the state senator from San Diego, James Mill, introduced and got passed the act that's in his name. What it does is gives a tax benefit on historical structures from 40 to 60% to encourage owners to spend the savings rehabilitating their homes. The property-tax savings are based in part on the owner's income and how much is spent to maintain the property.
Owners who enter into the 10-year agreement with their local governments must actively maintain the historical integrity of their properties. You can update it in some fashion, but the main purpose is to help the property maintain its historical perspective.
The original law stated that owners had to open their homes to the public for so many days a year to maintain the deal, along with it being a 20 year contract, but the visitors regulation was thrown out and, of course, the term years was reduced.Each community gets to designate which homes it believes are qualified to receive benefits from the Mills Act. People are expected to follow through with the agreements also, at the risk of some pretty stiff penalties, which not only include adding the taxes back but penalties on top of 12.5% of the homes current market value. That assessment also is attached if either the city or the owner decides to opt out of the program for any other reason.
The only drawbacks to this program are that you can't do anything outrageous to the house, or actually, the property, since historical commercial property is included in this act.
Many people purchase commercial properties and turn them into museums that they open to the public for different uses, such as to just show the house, or to use to show their own art or the art of others.In any case, you can't overly modify these homes. You can do restoration efforts such as modernizing windows, changing the floors or carpets and updating wallpaper, but the style has to be as it was in its past. You can't add new things that drastically alter the appearance, such as sunroofs, saunas, and the like, but you can add touches like air conditioning, fans, and different types of lighting.
One of the best things about the Mills Act is that the terms are transferable. Therefore, if you purchased a property and did the updates, you can turn it around and sell it to someone else, and they'll benefit from the tax breaks. Selling a house might be easier because of the reduction of the taxes for the potential buyer.
What's needed to get consideration for this tax break is minimal. Here it is:
• Mills Act Contract Application
• A completed financial analysis for the Mills Act contract form (the final financial analysis is prepared by the County Assessor's Office)
The following must be prepared by a specialist in historic preservation:
• An architectural report identifying the status of all character defining features of the building(s) and site (photographs required)
• A restoration/rehabilitation plan for the designated property.
• A maintenance list to be submitted to support the need for tax relief
That's it. The Act makes the process very simple to follow and to process. So, if you're thinking about buying property in California, this is something to consider that might help make purchasing an older home affordable.
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