The Mills Act in California is a state law that lets owners of qualifying historic properties sign a contract with their city or county, agreeing to preserve and maintain the building in exchange for property taxes calculated on the building’s income potential instead of its market value. That swap in valuation method typically reduces the annual tax bill by 20 to 70 percent, depending on the property and where it sits.1California State Parks – Office of Historic Preservation. Mills Act Program The law dates to 1972 and remains the state’s strongest property tax incentive for owners of historic buildings.
Does Your Property Qualify
Two conditions have to line up: the property itself must be a “qualified historical property,” and the city or county where it sits must have adopted a Mills Act program.
Under Government Code Section 50280.1, a qualified historical property must be privately owned, not already exempt from property taxes, and appear on at least one of these registers:2Justia Law. California Code GOV 50280-50290 – Historical Property Contracts
- The National Register of Historic Places, either individually or as a contributor to a federally registered historic district.
- The California Register of Historical Resources, or any city or county register of historic or architecturally significant sites.
Local adoption is where many owners hit a wall. The state authorizes cities and counties to participate, but does not require them to. Some jurisdictions have no program. Others cap the number of contracts they approve each year, or set assessed-value thresholds that trigger extra documentation. Los Angeles, for example, uses assessed-value caps and requires an additional historic structure report above those levels.3Los Angeles City Planning. Mills Act Historical Property Contract Program Before spending money on an application, call your local planning department and confirm the program exists and what local rules apply.
Single-family homes are the most common Mills Act properties, but commercial, industrial, and multi-family residential buildings can also qualify. Some cities apply different application thresholds or capitalization rates to those categories.
How the Tax Savings Are Calculated
A standard California property assessment follows Proposition 13: the assessed value is tied to the purchase price and grows no more than two percent a year. A Mills Act contract sets that aside. Instead, the county assessor estimates what the property could earn as a rental, subtracts reasonable operating expenses, and divides the result by a capitalization rate that combines a mortgage interest component, a built-in risk factor (4 percent for owner-occupied single-family homes, 2 percent for other property types), the local tax rate, and an amortization figure tied to the building’s remaining useful life.4State Board of Equalization. Guidelines for the Assessment of Enforceably Restricted Historical Property A higher capitalization rate produces a lower assessed value, which is why the built-in risk factor matters: on a single-family home, the 4 percent addition alone pushes valuation well below a standard appraisal.5California Legislative Information. California Revenue and Taxation Code RTC 439.2
The statute includes a ceiling. The Mills Act value cannot exceed the lower of the property’s current market value or its factored Proposition 13 base-year value calculated as if no Mills Act restriction existed.5California Legislative Information. California Revenue and Taxation Code RTC 439.2 In practice the income approach almost always comes in lowest, which is the point of the program.
What You’re Agreeing To
The tax cut comes with a real preservation obligation. Under a Mills Act contract, you must preserve the property and, where needed, restore it to conform to three standards: the Secretary of the Interior’s Standards for Rehabilitation, the rules of California’s Office of Historic Preservation, and the State Historical Building Code.6California Legislative Information. California Government Code 50281 – Historical Property Contracts
The general philosophy is to repair original materials rather than replace them. Modernizing hidden systems like electrical and plumbing is fine. Visible historic features need to be preserved or restored with compatible materials and methods, and new additions should be distinguishable from the historic fabric and reversible where possible.
The local government inspects both the interior and exterior before the contract begins and every five years after that.7California Legislative Information. California Code GOV 50281 – Historical Property Contracts Inspectors check whether you are on pace with the ten-year maintenance plan you submitted and whether the property still holds its historic integrity. Falling behind on scheduled work or making unauthorized alterations can trigger enforcement.
How to Apply
Applications go to the local planning department, and every jurisdiction runs its own forms, deadlines, and review calendars. Fees range from a few hundred dollars to more than a thousand, and are separate from any monitoring fees charged later. The core package usually includes:
- Current color photographs of every exterior elevation, significant interior features, and any outbuildings.
- A ten-year restoration and maintenance plan with cost estimates, following the Secretary of the Interior’s Standards for the Treatment of Historic Properties.
- The grant deed or an equivalent legal description of the parcel.
- Construction history covering the original build date, past alterations, and current condition.
Planning staff typically inspect the property and prepare a recommendation. A local historic preservation commission reviews the application at a public meeting and forwards its recommendation to the city council or county board of supervisors for a final vote. Once approved, you must record the contract with the county recorder within six months.6California Legislative Information. California Government Code 50281 – Historical Property Contracts Outstanding code violations disqualify applicants in many jurisdictions, so clean those up first.
Contract Term, Selling the Property, and Getting Out
Every Mills Act contract runs a minimum ten-year term. On each anniversary, a year is automatically added to the end, so the remaining term stays at ten years indefinitely unless someone acts to stop the rollover.1California State Parks – Office of Historic Preservation. Mills Act Program
Selling doesn’t end the contract. It runs with the land, and the buyer inherits both the tax savings and the preservation obligations without any right to renegotiate.6California Legislative Information. California Government Code 50281 – Historical Property Contracts Buyers should read the contract and the remaining maintenance plan before closing.
There are two ways out, and they are not the same.
Nonrenewal. You file written notice at least 90 days before the contract’s anniversary date. The local government can start the same process by giving you at least 60 days’ notice.8California Legislative Information. California Government Code 50282 – Nonrenewal The contract does not end immediately. It runs out the remaining balance of its current term, and during that wind-down the assessed value climbs back toward the normal Proposition 13 figure year by year.
Cancellation. If the local government finds you in breach and cancels the contract, you owe a fee equal to 12.5 percent of the property’s current fair market value, calculated as though no Mills Act restriction existed.2Justia Law. California Code GOV 50280-50290 – Historical Property Contracts On a $1.5 million property, that penalty runs to $187,500. The severity is intentional.
Stacking with the Federal Rehabilitation Credit
Owners of income-producing historic buildings can potentially combine the Mills Act with a separate 20 percent federal tax credit for qualified rehabilitation expenditures on certified historic structures, spread over five years under Internal Revenue Code Section 47.9Office of the Law Revision Counsel. 26 USC 47 – Rehabilitation Credit
The federal credit does not apply to owner-occupied primary residences. It’s only available for depreciable, income-producing property like rental homes, apartment buildings, and commercial spaces. Rehabilitation spending must exceed the greater of the building’s adjusted basis (excluding land) or $5,000 within a 24-month measurement period, and the work has to meet federal rehabilitation standards certified by the National Park Service.
Insurance and Lender Considerations Before You Sign
Historic designation can affect homeowner’s insurance. Carriers often view historic properties less favorably because restoration-quality materials and specialized labor make claims more expensive, and some decline to write policies on older buildings that lack modern safety features like fire sprinklers. Shopping insurers who specialize in historic properties is worth the effort. Be ready to explain the difference between a local historic designation, which regulates what you can do to the building, and National Register listing, which imposes no restrictions on its own.
Lenders generally have no problem with Mills Act contracts. The lower tax bill can actually help your debt-to-income ratio when qualifying for a mortgage. The real concern is that the maintenance obligation is a long-term financial commitment, so budget for the restoration work alongside the mortgage before signing the contract.