By LAURA LOTHIAN
Two homes sold recently in La Mesa, both for about $1.5M. One homeowner paid $18,355 in annual property taxes last year ($1,530 per month), while the other paid $5,093 in annual property taxes ($424 per month) last year.
Why the whopping $13,262 difference? Mills Act. The home enjoying property tax savings of over $1,100 per month is registered under the Mills Act Program.
Established in 1972, the Mills Act Program is a tax abatement program between the property owner and the local government presiding over the property.
Per the California Office of Historic Preservation, the Mills Act Program is the single most important economic incentive program in California for the restoration and preservation of qualified historic buildings by private property owners. The rationale is property owners will use their property tax savings to maintain their historic properties.
Communities renowned for historic neighborhoods enjoy beautiful architecture, heritage tourism, and really high real estate prices – think Coronado, Mission Hills, Point Loma, North Park, South Park, Kensington, La Jolla, and our own La Mesa Village and Mount Helix – add Mills Act tax benefits to historic properties and ownership and buyer enthusiasm intensifies.
There are no limits to how many homes can participate in the Mills Act Program in La Mesa. Currently, there are 48 Mills Act properties in La Mesa Proper. Some well-known properties include the Sherman Grable House at 4344 Date Ave, the Todd House at 8069 Vista Drive, and the Albert W. Gray House at 8045 Culowee Street, which is also the oldest Mills Act property in La Mesa, built in 1891.
Mills Act offers prestige, potentially huge tax savings, and often increases home values. The popularity of the program is undeniable. The number of San Diego County Mills Act homes nearly doubled from 1,200 properties in 2012 to approximately 2,200 now.
What are the criteria to acquire Mills Act Designation? How much does it cost? Will there be property tax savings? How long does it take?
Criteria for Mills Act eligibility
The most important criterion for Mills Act eligibility is, first, being designated a historic landmark. Historic landmarks must meet at least one of the following criteria:
- It exemplifies special elements of the City’s cultural, social, economic, political, aesthetic, engineering, or architectural history.
- It is identified with significant persons or events.
- It embodies distinctive characteristics of a style, type, period, or method of construction.
- It is a valuable example of the use of indigenous materials or craftsmanship.
- It is representative of the notable work of an acclaimed builder, designer, or architect.
- It is identified with a person or persons or groups who significantly contributed to the culture and development of the City.
- It embodies elements of outstanding attention to architectural design, detail, materials, or craftsmanship.
- Additionally, 50 years is typically the minimum age.
Looking at costs involved
$4,150, which includes Historic Designation and Mills Act, plus the cost of two public hearings.
Property tax savings are not a given
Property tax savings under the Mills Act is not a given. The assessed value for any given year will be one of three values, whichever is the lowest:
Restricted (based on an income approach (this involves rental and cap rates, best to speak to the right personnel at City or County). The “restricted” value is often erroneously called “the Mills Act value.” Restricted value is why there was such a significant property tax difference in the two $1.5M homes above.
Fair Market (i.e. based on comparable sales, whether historical or not).
Factored Base Year (aka “Prop 13” value). If your Prop 13 value is lower than Restricted value, Mills Act will not provide property tax savings.
Process time to complete steps
Per the City of La Mesa, it takes typically 3-4 months to complete the steps listed above.
Mills Act does not expire. It is a 10-year agreement that automatically renews for one year each year on the anniversary of the effective date. There are always 10 years remaining in the term of the agreement. Mills Act remains with the property, not the owner.
In summary, Mills Act can offer significant property tax savings. The savings are most dramatic at the transfer of ownership (sale) in a rising or high-value market. Due to Prop 13, a homeowner paying low property taxes based on their original purchase price will see little to no tax savings by participating in the Mills Act Program. Not all Historic Landmark properties are Mills Act but all Mills Act properties are historical landmarks.
Thank you, Allyson Kinnard, associate planner of La Mesa’s Community Development Department and County of San Diego, lead Mills Act appraiser, Todd McCracken, for the valuable information you provided.
— Reach Laura Lothian at: Laura@LauraLothianRealestate.com.