Introduction
Preserving the historical heritage of a city is a crucial task that requires both individual efforts and collective support. In Pasadena, California, the Mills Act is an initiative that aims to encourage homeowners to preserve their historic properties by providing substantial tax savings. This article will provide an in-depth understanding of the Mills Act from the perspective of the assessor’s office and how it benefits homeowners.
Understanding the Mills Act
The Mills Act can be best described as a revenue-raising savings plan for homeowners. The main objective is to provide financial incentives to property owners so that they can utilize the savings from property taxes for the preservation and maintenance of their historic buildings. While homeowners of single-family residences typically experience substantial savings through the Mills Act, the effects might be negligible for those who have owned their properties for an extended period. This is because Proposition 13, a law passed in California in 1976, limits the increase in property taxes to a maximum of two percent each year based on the purchase price.
Valuation of Mills Act Properties
When it comes to assessing the value of Mills Act properties, assessors employ three different approaches: market value, income method, and cost approach. Each approach contributes to determining the overall value of a property, taking into account its unique historical significance. It’s important to note that there’s no one-size-fits-all approach to the valuation process due to the individuality of Mills Act properties.
Market Value Approach
The market value approach involves analyzing comparable sales of similar homes in the area. In Pasadena, where a significant number of turn-of-the-century homes exist, assessors can easily find comparable properties. However, in areas where historical homes are scarce, assessors have to make adjustments by using comparables from later eras. This approach helps ensure fair valuations for Mills Act properties based on market trends and property characteristics.
Income Method Approach
The income method approach assumes that the property is being rented on the open market. However, evaluating the fair market rent for historical homes can be challenging due to their unique features and potential demand. Assessors often have to consider factors like the presence of beautiful woodwork and unique architecture when determining comparable rent prices. The goal with this approach is to offer homeowners the most favorable valuations, as the Mills Act is designed to save them money rather than increasing the value of their homes.
Cost Approach
The cost approach takes into account the cost of the property and its improvements. Assessors calculate the potential rent and subtract the vacancy and collection rates to determine the property’s expected income. They also consider typical expenses like utilities and adjust them based on unique factors, such as large lot sizes. By combining all these factors, assessors arrive at an estimated value for the property.
Timelines and Processing
Applying for the Mills Act requires adherence to specific timelines and processing procedures. Homeowners should keep in mind that the effectiveness of their application is determined by the “lien date,” which is when the property is valued for taxation purposes. If a Mills Act contract is signed on December 1, 2016, it will only be effective from January 1, 2018. Processing times can vary, as the application needs to go through several stages before it reaches the appraiser.
The Benefits for Homeowners
The Mills Act offers significant benefits to homeowners, especially for those who have owned their properties for an extended period. While immediate tax savings may not be evident, homeowners can leverage the advantages when it comes to potential future property sales. By having a Mills Act contract, homeowners can advertise the reduced property taxes to potential buyers. Imagine the appeal of buying a historic Victorian home worth $1.5 million but only paying taxes on a value of $750,000. These tax savings can be transferred to the new homeowner, making the property even more desirable.
Conclusion
The Mills Act is a valuable program for homeowners who seek to preserve the historical integrity of their properties while enjoying substantial tax savings. By understanding the valuation methods, processing timelines, and potential benefits, homeowners can make informed decisions about participating in the Mills Act. With continued support and participation, communities can maintain their architectural heritage for generations to come.