Tax Relief for Homeowners
On Tuesday (May 2nd) Governor O’Malley signed a bill that will bring long-overdue tax relief to homeowners in Prince George's County. The action could cut hundreds of dollars from many homeowner tax bills.
The bill the Governor signed (SB683) was the Senate counterpart to a bill I introduced (HB892) to make it clear that the Maryland “Homestead Tax Credit” applies to all property taxes, whether they come from the county, the state, local governments, or (as of Tuesday) bi-county agencies like the Maryland National Capital Park and Planning Commission (MNCPPC).
The Homestead Tax Credit
The Homestead Tax Credit limits how much more you have to pay when the value of your home rises. At the state level, the cap is 10%. If the assessed value of your house goes up by 50% (which was not uncommon in the boom years of the recent past), the Homestead Credit effectively limits the increase in your tax bill to 10% a year.
If you have lived in your house for any period of time, you likely have accumulated a Homestead Tax Credit. How much depends on how much your house has increased in value (the more it's gone up, the larger the credit) and how long you have lived there.
The Prince George’s Problem
The problem was that in Prince George's County the Homestead limitation was never applied to the MNCPPC tax levy (and two smaller taxes for other bi-county agencies). For those entities, the tax bill was calculated on the full assessed value of the house.
This issue was brought to my attention last summer by a constituent who wanted to know why her tax bill was higher than it should be. That’s when I found out that the Homestead limit was not being applied to these taxes. I introduced my bill to fix this. A similar measure was introduced in the Senate by Doug Peters.
Legislative Back and Forth
That’s when the lobbying began. MNCPPC agreed that the Homestead limitation should apply, but they wanted it only for future increases in property values. They were concerned that making any change retroactive would cut revenue they needed.
On the other hand, it could be argued the Homestead limitation should always have been applied to the these taxes. If so, why should we not give homeowners credit for the missed benefits?
To make a long story short, the Senate did exactly this by adding an amendment to the bill just before passage that specified that tax bills should be calculated as if the Homestead Credit had always been applied.
I believe this was a reasonable decision. Taxpayers need help. These taxes were improperly calculated in the past.
What does this mean for you?
If you live in your own home, you are eligible for the Homestead Tax Credit. The simplest way to see how much you will benefit is to look at the Assessment Notice you are sent every three years. It lists the current assessed value of your home (Box #7), but it also lists the percentage of that value that is used to calculated your county property tax (Box #1) and your state property tax (Box #2).
In the past, the MNCPPC tax was calculated on the full assessed value of the home (Box #7). Beginning with the tax year that begins on July 1st, the number in the box for state taxes (Box #2) will be the one used to calculate your bill.
To get a very rough idea of what that means in real dollars, multiply the difference between the two numbers by $0.0030. That’s roughly the affected tax rate (30 cents per $100 of assessed value). For new homeowners, there may be no difference, but for those who have lived in their homes for a long time, the tax cut may be substantial.
You do not have to do anything to get this benefit. The tax bill you will receive sometime after July 1st will automatically reflect any homestead credit you are entitled to at every level of taxation – county, state, local and now the bi-county commissions.
You will see the results in a lower total tax bill. If you have a mortgage and they escrow payments for taxes for you, you may also see it in a reduced monthly payment. Your lender will tell you about that.
Balancing Priorities
It is easy to talk about cutting taxes, but doing so is not so easy because there is a cost to everything.
With the signing of the Homestead Tax Credit bill, the Governor, the House of Delegates and the State Senate have given you a tax break. I think that was the right thing to do.
The Homestead Tax Credit, after all, is the way we protect homeowners from inflationary increases in home values. For years, I had always assumed the Homestead Credit applied to all our taxes and was shocked to find out it did not. That is what prompted me to introduce my bill.
But there is also no question that our decision to give this break will have an impact. The anticipated reduction in revenue for MNCPPC is around $18 million.
The county budget that is now before the County Council anticipates receiving $60 million from MNCPPC. The Commission will now have to evaluate whether it can keep that promise and how the loss may affect their future plans for park and recreational facilities. The County Executive and County Council, likewise, may have to look at further cuts if the expected revenue from the Commission does not come.
Still, I believe the choice that we made in Annapolis to restore logic to the Homestead Credit program and to ensure that it is applied in Prince George's County just as it is in other counties was the proper one.
If you have questions about this or any other bill, feel free to contact me.
Delegate Doyle Niemann
240-606-1298
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
