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<br />MILLS ACT TAX ADJUSTMENT
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<br />The following is a simple example showing the possible tax benefits to the historical
<br />property owner of an owner-occupied single-family dwelling. Let's assume that the
<br />CUlTent assessed value for a house is $100,00 and that a fair rent or income is $600. Per
<br />month (prescribed in Sec. 439.2 ofthe State Revenue and Tax Code).
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<br />First, determine annual income. $600 per month minus approximately $100 per month
<br />assumed for maintenance, repairs, insurance, water, and gardener gives a net income of
<br />$500 per month. Multiply by 12 months to get an annual income of $6,000.
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<br />Second, determine capitalization rate as follows:
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<br />Detennine home loan mortgage rate. Federal Home Loan Bank on conventional
<br />mortgage on September 1, 1989, was (10.5%).
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<br />The historical property risk component of 4% (as prescribed in Sec. 439.2 of the State
<br />Revenue and Tax Code). The 4% risk component applies to owner-occupied single-
<br />family dwellings. A 2% risk component applies to all other properties (i.e.
<br />commercial, rental).
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<br />. The Tax Rate (Post-prop 13) of .01 times the assessment ratio of 100% (1 %).
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<br />Assume a remaining life of20 years. Reciprocal of this is 1/20 or 5%.
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<br />Add these together: 10.5 0% + 4. % + 1.00% + 5.00% = 20.50% Capitalization rate.
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<br />Last, detennine the amount of taxes to be paid by taking 1 % of the assessed value
<br />$29,268. Compare with current property tax rate:
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<br />Third, the new assessed value is determined by dividing the annual income ($6,000) by
<br />the capitalization rate (20.50%) to arrive at the new assessed value of$29,268.
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<br />Current property tax: 1 % of original assessed valuation of $100,000 is ($100,000
<br />* 1 % = $1,000).
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<br />Mills Act property tax: 1 % of new assessed value of$29,268 is $293 ($29,268 *
<br />1 % = $293).
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<br />Savings of $ 707 in annual property taxes.
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