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Monday, September 26, 2016

City may max out on historic home tax credits

Highland Park Crafsman home. Photo courtesy Charly Kemp

As the owners of a 102-year-old Craftsman home, Charly and Janelle Kemp  are well acquainted with the charms – and costs – of their Highland Park home.  That’s why they and hundreds of other Los Angeles  home and commercial building owners have taken advantage of a property tax credit to help offset the cost of  fixing up and maintaining their historic properties.  The Kemps estimate the Mills Act cut their annual property tax bill by 75%.   “It allows to put money away to do all kinds maintenance,” said Janelle Kemp.  But, unless the city takes action, not many other historic property owners in Highland Park or other Eastside neighborhoods will be able to take advantage of those Mills Act tax savings.

The city has placed a $1 million limit on how much of its annual property tax revenue is lost to Mills Act tax credits.   In the current fiscal year,  the city’s Mills Act tax credits are expected to total about $935,000, leaving little left over for future applicants.  The city has Mills Act contracts with more than 560 property owners – who agree to maintain and improve their historic properties – and another contracts were approved earlier this month. Six of those contracts covered properties in Angeleno Heights, Highland Park and Eagle Rock.

With the city close to reaching its Mills Act tax cap, Councilman Jose Huizar, who represents Highland Park and Boyle Heights, introduced a City Council motion instructing the City Planning Department to look into “appropriate mechanisms for renewing and/or increasing the cap.”  The motion reads in part:

The Mills Act property tax relief is a powerful tool that provides an incentive to owners of historic resources to preserve their historic properties. As such, the Council needs to enact the appropriate mechanisms for renewing and/or increasing the cap to allow this powerful incentive to remain available.

Given the city’s budget crunch, it’s not clear how willing the city will be to increase the cap and forego more property tax revenue.  But the Kemps and other historic preservationists say the Mills Act tax credit has paid off by encouraging the renovation of older home and stabilizing neighborhoods.

Janelle Kemp said many new Highland Park homeowners have been renovating homes and old commercial buildings. The lack of additional Mills Act tax breaks “might dampen some of that. It would be unfortunate.”

Related Items:

  • Mills Act Historical Property Contract Program. City of L.A.
  • Mills Act funds running out for historic properties. Downtown News


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28 comments

  1. Ive been restoring a 1911 craftsman in Boyle Heights for 3 years now and I haven’t been able to get any assistance because my block isn’t designated as a HPOZ. It is very expensive to do a restoration. Unfortunately many historic home owners don’t qualify for assistance so they remodel rather than restore, IMO the Mills Act is a good thing but it’s too limited many worthy homes get excluded because they’re not located in the right area. I believe its the neighborhood which suffers when it loses these historic homes because they have no protections or the owners are given no incentives to preserve these small pieces of history. Restoration is really difficult! Sometime we need a little more help preserving LA.

  2. why should tax payers, foot the bill to fix your home, if you choose to live in one of these homes pay for it yourself.

    • @ Joe
      Because those people actually care about the historic aesthetics of our city. And apparently the city cares about as well. By helping to preserve these historic homes. Everyone benefits. Even if you live in a run down tasteless stucco box next door to a restored craftsmen or victorian. So according to Joe we should just let our history go down the home depot drain. What a beautiful place this would be!

      • But what should be happening is the city should be cracking down and making sure those homes getting the tax break are in fact being maintained and restored. There should also be a minimum amount to be spent on the home based on the savings they are getting. Sounds like a win win situation. The home owners get rewarded for their time and effort in preserving history and so does everyone around them. And at the same time the city doesn’t have to do much to preserve its history other then monitor the home on the list.

  3. The Mills Act tax credit is a good thing. When historic homes are kept true to period and beautiful, then the whole neighborhood becomes special and more desirable. Joe, you’re not fair saying that we are “footing the bill”… Nobody is paying the taxes of the Mills Home property owners. They are paying their own taxes, just paying less because the money they sink into their homes benefits the city directly.

  4. Joe, just to be clear no tax payer has ever “footed” my restoration bills. To elaborate because you didn’t understand the first time, if there are no incentives to restore historical single family dwellings then most owners will opt to tear out anything historical and replace it with whatever is cheaper. The result would be no historical structures surviving 100+ yrs. that’s the whole reason the mills act was passed, to preserve historical homes (especially in lower income areas, because lets face it preservation is something that people with means do). Anyways, the incentive is to lower your taxes so you can spend more on the house it’s not the government giving you a check of tax payers dollars.

  5. Mr. Batmanuel,

    You don’t have to be in an HPOZ to get a Mills Act contract. Standalone Historic-Cultural Monuments are also eligible. Here’s the application: http://preservation.lacity.org/monument-application

    I would also make the point that the market rewards restoration. Here in Northeast LA, buyers (and to some degree, renters) are willing to pay a premium for houses with historic integrity.

  6. El Batmanuel, taxpayers are not directly footing the bill, but you are receiving an advantage that others do not, therefore the rest of us do pick up your share. The whole property tax thing is a racket anyway. There should be a resident tax. People live here, use city services, resources and facilities: we should all pay, not just property owners.

    • We do all pay – electric, sanitation, trash, water, gas, sales tax, state tax, federal tax. What else would you propose for renters?

      Anyway, the point is the money that goes back into these homes usually inspires others fix up their homes, which improves the neighborhood and increases the quality of life over all. If you don’t believe this, drive over to an HPOZ, and then drive to another historic neighborhood that isn’t an HPOZ like Westlake. HUGE difference.

      • renters do not pay property tax for example, and renters do not get assessed for all of the additional things property owners do.

        • Where do you think the property owners with rentals get the money to pay for the property taxes? Ummmm do you think it comes from maybe ummm rent? So then since the renters pay for the property taxes on the home they live indirectly and the property owners pay taxes on the home they live in as well. Then we all are paying!

          • It’s still less. Renters are using the same city/county services/facilities/schools but paying less than home/property owners. It’s simple math.

        • First of all, as Wow pointed out, renters DO pay property tax via rent, and DO pay for upkeep. What’s left over if pure profit for the landlord.

          I’m not sure what your bone to pick is with this scenario. The reality is many people in Los Angeles can not afford to own property and will never be able to afford it. In many cases they can barely afford rent. These people (myself included) living on barely enough to survive are essential to the local economy, and believe me, business owners would pitch a fit if there was a mandatory living wage. So what do you suggest?? Where would these people live if they couldn’t afford yet another tax? Where would we get cheap labor to run the city?

      • As much as I agree with you, I don’t know that using Westlake as a comparison is fair. Westlake is pretty much the main gateway for Central American immigration to the US. It’s been dense for nearly 100 years, with big multifamily buildings replacing grand Victorian houses since the 1910s.

        I do believe though, that HPOZs will only become more attractive and hence, more desirable over time. In a city as dynamic as Los Angeles, the contrast between HPOZs and neighboring, less regulated neighborhoods will become pretty stark.

  7. Renters pay far less, sanitation for example

  8. Property owners pay property taxes, not renters. if I buy an apartment building the tax bill comes to me not my renters. If I choose not to rent any of my rentals I still have to pay property tax. If I choose to rent my places for $1 or $1000 the rent is based on what the owner feels they can get for rent it is not directly based on how much property taxes are. The stance that: ” I pay rent to an owner and the owner pays property taxes so therefore I’m paying propert taxes” is an illogical argument. Example: I attend a class taught by a Steven Hawking, Steven Hawking is the smartest man alive, therefor I too am also the smartest man alive… Same logic still not true. One more thing “, taxpayers are not directly footing the bill, but you are receiving an advantage that others do not, therefore the rest of us do pick up your share.”. That’s not the way taxes work, if your neighbors get a tax break your taxes do not rise as a result. The pool of tax dollars is not a finite amount where if some get removed from this side you add to the other side. Instead the total tax amount goes up and down depending on how much they can tax. Example: during the real estate boom more people bought homes, more taxes came in from more property bills going out. During this recession less taxes came in because people lost their homes, less property bills were collected. It was not the case that every home owners taxes went up because of those who lost their homes.

    • The Steven Hawking analogy is invalid, as intelligence is an abstract concept, while currency exchanged for rent is not. The fact is, renters do pay the property tax with their rent. There is really no way you can argue that isn’t the case, barring an extreme circumstance where for some reason market value drops lower than the property tax per unit. Even though the renters aren’t directly responsible for the tax, their rent still pays it. If it didn’t, no one would get into the rental business.

      If that doesn’t convince you, let me add that owners of properties that fall under the rent control ordinance also receive tax cuts to adjust for the loss in revenue. So there is clearly a relationship between the two.

  9. When you say that rent pays for property taxes you make a huge assumption that the owner takes rent and directly pays taxes with that, that may or may not be the case. The relationship you speak of is definetly not a direct relationship, renters do not directly pay property taxes, indirectly maybe but that still depends on how the owner manages their finances. There are many things that may indirectly pay for someone’s property taxes, but because it’s not a direct relationship you can’t say X pays for Y absolutely in all cases.

    • I think we both know you are grasping at straws. One wouldn’t get into the business of being a landlord if the property taxes and all expenses weren’t paid, with a profit left at the end of the day. What would be the point? That’s the system.

      • *To clarify – paid by the RENT collected from tenants. And I never said it was a direct relationship – in fact I said the opposite. Profit= rent- expenses (such as property tax).

  10. Lauren I respectfully disagree with you. Grasping at straws is saying that your rent pays for property taxes and backing that up with “what would be the point of buying a property if it doesn’t pay for itself”? NOT ALL INVESTMENT PROPERTIES TURN A PROFIT AND NOT ALL OWNERS USE RENTS TO PAY PROPERTY TAXES. Sometimes “owners” can buy a property and pay for everything cash out of pocket. In LA a lot of properties are of purchased by corporations and wealthy people who can and do this, to say that all owners rely on rent payment in order to pay the basic bills is flat out inaccurate. Sometimes owners use rent money exclusively on”other” items (cars, clothes, booze, jets, hair cuts, stocks, bonds …anything other than taxes.) What they do with the money is TOTALLY up to them and thats why you cant make the blanketed statement that rents pay for taxes because in the end the is no absolute rule that the rent they collect will ever go towards taxes.

    Ill conceded that SOMETIMES a renters payment MAY go towards a property owners taxes, ONLY IF AND WHEN that owner uses the rent towards paying the taxes. Thats the only time a renter may indirectly pay property taxes. Not everyone does this, to assume that this is the only financial model that every real estate investors uses is false. Therefor the statement that “Renters pay for property taxes indirectly through their rent” is only true a fraction of the time and the statement itself is an over assumption/simplification of the renter/owner dynamic. I understand the desire for renters to say “hey i contribute to property taxes too” but it is not always the case.

    • Again, there are some circumstances in which the rent will not cover property taxes and other expenses associated with upkeep. What you seem to be arguing though is that the landlord is not paying the taxes with the ACTUAL rent money, to which I would reply that once the check is deposited into the account it becomes part of the larger cash-flow, and there is no way to track that kind of thing.

      So my question to you is, how does a landlord afford to pay the taxes if not with rental income? Why would they buy a building in the first place if they could not? The answer is, they do. The owners of multi-family rental properties purchase the buildings as a business, and if they weren’t able to pay expenses with the rental income PLUS have a profit, it wouldn’t be a viable business model and no one would do it. I’m talking about multi-family, not in investment properties like single-family houses or duplexes.

      That’s not to say that bad decisions don’t happen, but over all I think that’s the general business model. If you want, I can confirm this with my land lady. Her entire family is in the rental business, and owns at least 20+ multi-family properties in Los Angeles. We have had conversations about this before, in which she laments the loss of profit due to the property taxes. I get what you’re saying about the tenant not being directly responsible, but none the less the tax is paid. So in regards to your arguments above about a renter’s tax, how would you justify that?

  11. Here’s my personal experience. Bought a home for 250, mortgage was 1600, taxes were 3500 a year. I rented it for 1500/mo, does that 1500 cover the mortgage no, does it cover the taxes hell no. Why did I do this? Because I can now document 1500/mo extra income pushing my gross for the year up 18k. At the end of the year I have 250k asset and an extra 18k to my gross income. Now I qualify to buy a second property. Buy a second property and do the same, that how I’ve been building my wealth. Did my renters pay my taxes hell no. Your landlady is just one example she’s laments coming out of pocket because she’s maximizing profits, I was trying to accumulate assets. You dont completely understand realestate and it shows because you keep harping on this singular model for real estate when I keep telling you there are many more you’re not accounting for. Keep telling yourself whatever you want it doesn’t make it true. I have experience doing this, I’m telling you first hand it’s not always true that your rent pays property taxes.

  12. Here’s the bottom line, and the only thing relevant for this discussion; property tax MUST be, and IS payed on behalf of each dwelling, where rented or owned. Therefore, why should there be an additional resident tax?? That was the original point. Also, as I said above, I am not talking about investment properties. Please re-read.

  13. ^*Whether rented or owned

  14. Just to clarify, this is the statement made by eastsidearts: It’s still less. Renters are using the same city/county services/facilities/schools but paying less than home/property owners. It’s simple math.

    And my point is that whether or not the owner of the property chooses (as you have) to operate at a loss, or only to purchase a property they can make a profit on with rent, the tax is STILL paid on their behalf! That’s part of the rental agreement, along with upkeep and maintenance.

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