Homestead Tax Credit
The Maryland Homestead Tax Credit is so misunderstood, we thought we
would devote a whole page to explain how it actually
works. Many people believe that their property tax bill will be
reduced simply because the property owner lives in the property as their
principal residence. This is not true. The Homestead Tax Credit is not
simply a reduction of a homeowners property tax bill. The Homestead Tax
Credit is a limitation on increasing the property tax bill to no more
than a certain percentage higher than the prior year property tax bill.
Therefore, we think a better name for the Homestead Tax Credit would
have been the Homestead Tax
CAP.
How does the Homestead Tax Credit work?
The Cap is applied separately to the state portion of the tax bill and to the county/city portion of the tax bill. The state limitation is 10% on only the state portion of the tax bill. The county/city limitation Cap percentage varies by local jurisdiction.Consider the following example of a computation of a Baltimore County Homestead Tax Credit. Suppose last year the tax assessment was 100,000.00. Based on the Baltimore County tax rate of $1.10, last years tax would be $1,100.00. Suppose the following year, the county raises the assessment to $180,000.00. Since Baltimore County caps the increase at 4%, the homeowner would only pay $1,144.00 ($1,100.00 x 1.04). The tax bill will actually reflect a tax of $1,980.00 with a Homestead Tax Credit of $836.00.
Suppose the next year the tax assessment drops from $180,000.00 to $150,000.00. Even though the assessment has dropped, the taxes will still go up. This is because the Homestead Tax Credit was artificially keeping the amount of taxes down. The tax bill will reflect taxes of $1,650.00. ($150,000.00 x $1.10) After applying the Homestead Tax Credit of $461.00 the amount due from the homeowner will be $1,189.00. $1,189.00 is 4% higher than the prior year bill of $1,144.00.
Therefore, regardless of your tax assessment going up or down, you actual tax bill may still be increasing by the applicable percentage over last years taxes. In many cases, while the tax assessment may go down, the tax bill can increase. (Due to the catching up of prior year accumulated Homestead Tax Credits)
Homestead Tax Credit FAQ’s
Q. What are the local County/City Homestead Credit Tax percentages?A. Maryland lists the percentages here
Q. Who is entitled to the Homestead Tax Credit?
A. Only owner occupied principal residences qualify for the Homestead Tax Credit.
Q. How can I tell if the Homestead Tax Credit will be applied to my tax bill?
A. Check the SDAT website. On the top right corner of the page is a category of "Principal Residence" To the right of the "Principal Residence" category is either a "Yes" or "No". You will not receive the credit if the principal residence designation is No.
Q. Suppose the county does not have my principal residence designation correct, what should I do?
A. Download a Homestead tax credit application here to submit to the county.
Q. Do I have to apply for the Homestead Tax Credit every year?
A. Normally no. Once it is designated on the tax assessment records, the designation carries over from year to year. However, if you notice that the county has changed your principal designation, (normally noticed upon receipt of a substantially higher tax bill than the previous year's bill), you should check the SDAT website to verify the status has not changed.
Q. Suppose I buy a house from a seller who was receiving the Homestead Tax Credit, do I continue to receive the sellers reduced tax bill with the Homestead Tax Credit applied?
A. Unfortunately not. At the very next tax bill, the taxes will revert to the full assessed value.