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Realities of Real Estate: More on the Homestead Tax Credit

We have written several columns on the Homestead Tax Credit. It may seem like overkill, but for those who qualify, it can mean a savings of literally thousands of dollars in your real estate taxes. Plus, the Dec. 31 deadline for application is fast approaching.

In last week’s column we used the word “reapply,” and this confused some of our readers who have already made the necessary application. As a result, we’ll try to better clarify exactly what homeowners must do to benefit from the savings provided by this credit. But first, let’s make sure everyone is on the same page with an excerpt from the Maryland Department of Assessment and Taxation website:

What is the Homestead credit?

To help homeowners deal with large assessment increases on their principal residence, state law has established the Homestead Property Tax Credit. The credit limits the increase in taxable assessments each year to a fixed percentage. Every county and municipality in Maryland is required to limit taxable assessment increases to 10 percent or less each year.

Technically, the Homestead Credit does not limit the market value of the property as determined by the Department of Assessments and Taxation. Instead, it is actually a credit calculated on any assessment increase exceeding 10 percent (or the lower cap enacted by the local governments) from one year to the next. The credit is calculated based on the 10 percent limit for purposes of the state property tax, and 10 percent or less (as determined by local governments) for purposes of local taxation. In other words, the homeowner pays no property tax on the market value increase that is above the limit.

Example

Assume that your old assessment was $100,000 and that your new phased-in assessment for the first year is $120,000. An increase of 10 percent would result in an assessment of $110,000. The difference between $120,000 and $110,000 is $10,000. The tax credit would apply to the taxes due on the $10,000. If the tax rate was $1.04 per $100 of assessed value, the tax credit would be $104 ($10,000 divided by 100 times $1.04).

Application requirement

To prevent improper granting of this credit on rented or multiple properties of a single owner, a law was enacted in 2007 that requires all homeowners to submit a one-time application to establish eligibility for the credit. Applications are available by contacting the Homestead unit via email at homestead@dat.state.md.us

Conditions

The tax credit will be granted if the following conditions are met during the previous tax year:

-The property was not transferred to new ownership.

-There was no change in the zoning classification requested by the homeowner resulting in an increase value of the property.

-A substantial change did not occur in the use of the property.

-The previous assessment was not clearly erroneous.

A further condition is that the dwelling must be the owner’s principal residence and the owner must have lived in it for at least six months of the year, including July 1 of the year for which the credit is applicable, unless the owner was temporarily unable to do so by reason of illness or need of special care. An owner can receive a credit only on one property — the principal residence.

So, to put this issue to bed, here are three simple steps we recommend:

-Check to see if your application is already on file. If the state records show that your Homestead Tax Credit application has been approved, you’re all done.

The easiest way to check this is to go online. First, Google “Maryland Real Property Search” and click on “SDAT: Real Property Search.” That will take you to a website where you can look up the public record on your property. Select your county, click on “Street Address”, put in your address and hit “search”. That will bring up the public record on your house. Scroll down to the bottom of the page, and it will show the status of your Homestead Tax Credit application. It will say, “No Application,” “Denied” or “Approved.”

For those of you who don’t have a computer handy, you can call 410-767-2165 to check your status. If your application has been denied or isn’t on file, you’ve got some more work to do.

-For those who have been denied, you might not qualify. But, it’s probably a good idea to call them at 410-767-2165 or email them at Homestead@dat.state.md.us to make sure there isn’t an error and/or find out how to appeal your application.

If the public record shows that no application has been made, you’ve got until Dec. 31 to get this done. Again, you can call or email the contacts above to have the state send you an application form, you can download a PDF of the application, or you can complete the application on-line.

To do it on-line, you’ll need your Real Property Account Number, and an Access Number. If you have a copy of your State Assessment notice, that will provide this information; otherwise, you’ll need to call the state at 410-767-2165.

-Once you’ve made application, you should follow up before the end of the year to make sure it’s approved and on file. If you fail to meet the deadline, you can still make application in 2013, but you’ll lose your Homestead Tax Credit for a year, and that could cost you thousands. And finally, willful misrepresentation of your qualifications for the credit can result in a 25 percent penalty plus back taxes and interest.

If you still have any questions, concerns or confusion, don’t hesitate to call or email us, and we’ll help you get pointed in the right direction.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is McWilliams@BobDonna.com.