If you suspect that your property may be a historic building, you may want to learn more about the Mills Act (otherwise known as Historical Property Contract). The Mills Act was developed to help preserve historic neighborhoods, revitalize older areas, and build civic pride. It can also save you money on your property tax.
Most properties are valued using the standard Market Approach to value, which means that your property is assessed at market value when you purchase it. The assessed value increases annually with a 2% cap on the annual increase.
Historic properties under a Mills Act contract, however, are valued based on the Income Approach to value. The approach uses the rental income divided by a capitalization rate to determine the assessed value. The income on a commercial property is based on actual rent received. The income of an owner-occupied property is based on comparable rents for similar property.
The savings in annual property tax may be between 40% and 50%, depending upon the rents in the area. In return for the savings, you must agree to maintain and preserve your historic property. The agreement is transferable to a new owner when the property is sold.
Steps to obtaining a Mills Act Contract:
- Check your local government to see if they offer the Mills Act Contract. If not, you may ask your local planning department to consider adopting the program.
- Determine if your property is a qualified historic property. If your house is listed on any federal, state, county, or city register of historic places, it is a qualifying property. If your property is not currently on any list, you may apply for a listing concurrent with your application.
- Contact your local government’s Mills Act representative to obtain an application for a contract.
- Gather related documentation, including photographs, copy of the deed, title report and fee.
- Record approved preservation agreement with the county assessor to obtain the reassessment.
To learn more about property tax, please call LSL CPAs at 714.569.1000.
By Carolyn Bryant, CPA
