Property Tax Information
Posted by David Keelan on Saturday, January 6, 2007
In response to a question asked of me on the HCAA list serve I wrote the following.
I referred to the Homestead Tax Credit as a tax deferral. I mislabled it and responded to additional questions specifically what options to seniors have today when one considers that property assessments have risen 72%, 100% and 150% depending on where you live in the County. These assessment increases are HUGE! The county is like a kid in a candy store. Aside from Statement 43 and 45 they are flush. I suspect that they are going to get a lot of elbow room on implementing the new accounting standards.
Anyway, you may find the information somewhat interesting or useful.
You are absolutely correct. I mispoke. I was referring to the PROPERTY TAX DEFERRAL. Too much reading on my part – pardon my error. Also, these are very good questions. I hope that the HCAA readership is interested enough to stay with us on this.
From the SDAT website:
PROPERTY TAX DEFERRAL
This program allows property owners, age 65 or older, to elect to defer the increase in their property tax bill. Each local government must first adopt the program. The local government then has the authority under State law to impose income restrictions and interest rate amounts. The deferred taxes become a lien on the property and must be repaid when the property is transferred. Montgomery County makes this deferral program available to homeowners of all ages who meet certain residency and income requirements.
The Homestead Tax Credit is not a deferral As the SDAT website says
HOMESTEAD TAX CREDIT PROGRAM
Another tax relief program is the Homestead Tax Credit. First enacted in 1977, the program has since been amended so that homeowners may be eligible for a state tax credit if the assessment of their owner-occupied principal residence increased more than 10% over the prior year. State law requires that county and municipal governments set a Homestead Credit Percentage between 0% and 10% for purposes of local property taxation. Upon qualification as the principal residence of the homeowner, this credit is automatically processed and is applied to the property tax bill.
This is the same thing as Howard County’s 5% assessment cap. I went into this in great detail on my blog (here) this past March. There was a great deal of discussion in the event you would like to read the commentary. This is available to all home owners. By State law Howard County could raise the phase in to 10% but they keep it at 5%.
On that post I wrote:
“Maryland uses a triennial assessment process. In that process one third of the County is reassessed each year and the assessment adjustment is phased in over a three year period. So revenue is predictable. If a triennial reassessment increase on a property is more than 15 percent, it will take more than three years to fully phase in the increase. Since the current assessment cap is at 5 percent and 5 goes into 15 equals 3 it will take three years to phase in the increases. This year (2006) the residentaial portion of the assessable base in the third assessment area (Northeastern third of the county) grew by an average of 74% from reassessments. If these properties remain with the same owner, it will take fifteen years for those properties to be fully phased in. We know not all homeowners are going to stay for 15 years, but at a 74% reassessment how many have to leave to meaningfully change the numbers? Now consider and add the other assessment areas of the county. Additionally, during this same time period those same properties will be assessed up to three more times before THIS assessment increase is fully implemented.”
I should add that when a property is sold the new home owner begins to pay taxes on the full assessed value of the home and not the phased assessment. What this also means is that every year every property owner in Howard County receives an automatic tax increase. On top of this our property tax rates in Howard County exceed the State’s Contstant Yield Tax Rate. The CYTR is a State law that prohibits local government from setting the tax rate at a level that will generate revenues that exceed the previous years revenues.
Again from the SDAT
The Constant Yield concept is that, as assessments rise, the tax rate should drop to the point that the revenue derived from the property tax stays at a constant level from one year to the next, thus assuring a “constant yield” from this tax source. The Constant Yield Tax Rate is simply a property tax rate that, when applied to new assessments, will result in the taxing authority receiving the same revenue in the coming taxable year that was produced in the prior taxable year.
That does not happen in Howard County. Howard County doesn’t have to follow the provisions of the CYTR.
Again from the SDAT:
Although setting of the local property tax rates is the task of elected officials, Maryland’s Constant Yield Tax Rate Provision gives property owners a voice in the process before the final tax rates are determined. This is done by requiring each taxing jurisdiction to give advance notice and hold public meetings prior to the rate setting if they are considering a tax rate higher than the Constant Yield Tax Rate. Most meetings are held during April, May and early June. Tax rates must be set by July 1, which is the beginning of the tax year.
Can anyone on this list tell me if they ever attended such a public meeting?
What this means is that local government has an every increasing revenue stream and they do not adhere to the CYTR. That is why I stated earlier “Howard County takes in more revenue than projected every year. Given the tri-annual property assessment process and the phase in provisions of property tax increases Howard County is experiencing increased revenues every year.”
There is also the Homeowners Property Tax Credit for those whose property is assessed at less than $300,000 and whose income is less than $55,000. It can limit property taxes to anywhere from $0.00 to less than $4,000 depending on the mix of income and assessed property value. Taxes must be paid at the full assessed value on anything above $300,000 in assessments. This is also available to renters though I didn’t look into it. There is other criteria for this Tax Credit, but it is a good place to start if they meet at a minimum the income criteria.
If I were a Senior, had the equity in my home, and did not mind having a lien placed on my home I would pursue the Tax Deferral. Another reader suggested a reverse mortgage as an alternative – but the intent (as I understand it) is that homeowner would give up ownership of the property and would incurr a debt against the home – in fact they may end up borrowing more than the property is worth. In a tax deferral that would be unlikely to happen. News reports have been such that seniors have not taken advantage of this program as expected and the most common explanation is that they do not want to be nor have their heirs to be encumbered by a tax lien.
However, given that property assessments are so large (72% or more in some areas, 100% in others as you noted, and 150% in my case) I think a freeze in assessed value and a property tax reduction are the most prudent and effective ways to help our seniors who meet the eligibility requirements (age and income) as proposed in the latest Senior Property Tax program.
For those who don’t like this tax cut because it is a targeted tax cut we could pursue another course of action that would help all tax payers. We could lower our tax assessment phase in from 5% to 4% as Charlie Feaga proposed and the Council passed in 2006 but it was vetoed by Jim Robey, and/or insist that the County adhere to the CYTR provision of State law. I think we could revisit Councilman Greg Fox’ proposal of making assessments portable for senior citizens who meet the same age and income requirements.
Let me close with this comment I made at Hayduke’s place:
Let me ask everyone a question just to see if we are all at least starting from the same point.
Are we all aware that property assessments have gone up from 72% to 150& depending upon where you live in the county? Are you also aware that these will be phased in over a number of years (take 72% and divide by 5% = the number of years it will be phased in) and while they are being phased in the property will be reassessed in three year increments ensuring increased assessment values?
We will not get any relief here – no one. However, most of us are earning income and earn more every year. Seniors don’t have that kind of earning power. They are stuck.