Reducing your Property Tax for Historic Homes

Reducing your Property Tax for Historic Homes

Ken DeLeon and Michael RepkaNovember 22, 2013
Palo Alto Daily Post

 

Many areas of Palo Alto, such as Professorville, and the surrounding communities are replete with historic homes.  These homes add charm and majesty to the neighborhood, but the restrictions placed on the homeowners can have a profound impact on the owner’s use of the home.  Further, the historic designation can have an impact on the property’s fair market value.

While owning a historic home has many advantages and disadvantages, there is one opportunity often overlooked—many homes on the historic registry are well on their way to getting a reduction in their annual property tax under a state-sponsored program called the Mills Act.

The Mills Act offers a substantial reduction in property taxes for owners of "qualified historical properties" provided they agree to preserve, restore, rehabilitate, and maintain the historical and architectural character of their properties. The legislative intent was to reduce the property tax so that owners of historic homes could use that savings to maintain the historic character of the house. 

In order to qualify, the property must be privately owned and listed on any official federal, state, county or city register.  However, being listed on a register is not enough.  The program is administered at the local government level and there are limitations to the number of homes that can qualify and there is a detailed application procedure.

If the property is already designated a "qualified historical property" then the procedure is fairly straight forward: 

  1. The applicant submits a Mills Act application, including a plan for preservation, to the Santa Clara County Planning Office;
  2. The Historical Heritage Commission evaluates the application;
  3. If the Commission recommends approval to the Board of Supervisors, the Office of the County Counsel prepares a preservation contract that incorporates the standards and/or conditions stipulated by the Commission and agreed upon by the property owner;
  4. The recommendation of the Commission and the preservation contract is then presented to the Board for approval;
  5. If the Board confirms the findings of the Commission, the preservation contract will be approved and formally executed between the property owner and the County of Santa Clara;
  6. The Assessor's office will then make the appropriate changes to the assessment roll.  This can result in a tax savings of over 50 percent per year, although the savings will much less if the property has been owned for a long time and already benefits from Prop. 13. 

Once approved, the taxpayer enters into a 10 year contract with automatic one year extensions.  The contract will outline the steps for preservation and restoration and will provide for access and inspection to ensure compliance.  Although these restrictions are binding on future owners for the period of the contract, the owner can take steps to terminate the arrangement once the contract period is up.

Although the possibility of tax savings under the Mills Act may not be enough to justify the purchase of a historic property, owners of properties that may qualify should consider whether they could benefit from the program without material impact on their plans for the property.  If so, it may be worth the time and expense involved in the application process.

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