Busting a myth about Md. property-assessment appeals
Psst ... better not appeal your property assessment -- the state will take away your Homestead tax credit!
It's a persistent rumor. Like many persistent rumors, it has a bit of truth all twisted out of shape.
You have to understand how the Homestead tax break works to see why this could be true, depending on the circumstances, but not in the "if you dare question us we'll show you" way that some homeowners assume.
Here's the bottom line: If you were eligible for the tax break before you appeal, you're still eligible afterward -- but the value of your credit might drop to zero if you convince the state to lower your assessment in a big way.
Trust me, this isn't bad news. Read on to see why.
The Homestead credit is for owner-occupiers only. You qualify once you've been in your home a full fiscal year. It works by capping the amount of assessed value you can actually be taxed on in any one year -- 4 percent in the city, for instance. (That effectively means it caps the increases in your tax bill at 4 percent, as long as property-tax rates don't rise.)
If property values are skyrocketing, you'll end up with a taxable assessment that's significantly lower than your total assessment (which the state refers to as the "market value").
Here's an example:
Joe Schmoe buys a home in 2004 for $130,000, around the city average and -- conveniently -- the exact amount of his property assessment. By 2007, the average is up to about $180,000 and so is Joe's assessment.
But he's being taxed on $146,000 and change, because his annual increase was capped at 4 percent. (The cap on state taxes is 10 percent, but the state's tax rate is a small part of the total you pay, so I'm focusing on local taxes.)
Joe sees that he has a substantial Homestead credit and thinks, Sweet.
Then the housing market plummets. Now Joe's home is worth $158,000, again sticking with the city average. But let's say his assessment doesn't reflect that -- let's say it's still $180,000. (At this point, he's paying on $165,000 of that, which is the '07 figure increased by 4 percent in 2008, again in 2009 and finally in this year.)
Joe says "to heck with this" and appeals. The state looks at the comps he brings in and agrees that yes, his home is worth $158,000, not $180,000. He rejoices.
Then he sees his new tax statement. No Homestead tax break! Where did his $15,000 credit go?
It vanished because his brand-new total assessment is now less than his previous taxable assessment. This means Joe is paying less in taxes. If he'd only managed to convince the state to drop his assessed value to, say, $175,000, he'd have a small credit and a tax bill exactly the same as he would have had he not appealed.
So, really, you want your Homestead credit to go away when you appeal. It means you're having an effect on your tab.
Robert E. Young, deputy director for the Maryland Department of Assessments and Taxation, confirmed for me that the state isn't maliciously yanking Homestead credits from everyone who asks for a lower assessment.
"A homeowner does not automatically lose the Homestead Tax Credit for one year when he or she appeals," he wrote me in an email. "Instead what does occur is that the amount of the reduction in the assessment by the Department can be so significant that the homeowner no longer mathematically qualifies for the Homestead Credit."
Hope that makes sense, everyone.
Categories: Homestead Property Tax Credit, Property taxes, Resources for new buyers & owners
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Comments
This makes sense. I was wondering if anyone has any success stories with appealing their assessment upon purchase? Is it relatively easy to take your sale contract to the MDSDAT office within 60 days of "transfer" (which, by the way, is later than the closing date) and have the office say, "OK - you paid $275K - the house is worth that instead of $400K"?
Is MDSDAT pretty much required to reassess the house at the price it was purchased for?
Thanks!
Posted by: Sarah | August 20, 2010 12:26 PM
Hi, Sarah -- I hope some folks with personal experience weigh in. My sense of the process is that you'll have better luck if you also bring in examples of similar homes that sold recently, known as "comps."
I think the state doesn't like to judge a property's value based purely on the purchase price, figuring that buyers sometimes purchase homes for less -- or more -- than the going rate in the surrounding area.
Posted by: Jamie Smith Hopkins | August 20, 2010 1:00 PM
http://www.dat.state.md.us/sdatweb/appeal.html
This is the link to for the appeal process from the Maryland website. The website tells you to provide anything that will assist you in showing the changed value of your property like different sales listings for the area. The website even provides a list of items that would be most effective in showing your value has changed.
Posted by: pigtown | August 20, 2010 3:59 PM
Thanks, Pigtown. The state has definitely said that comps are a good idea to bring to an appeal. I just didn't want to say that an appeal-after-purchase buyer absolutely needs comps, since I don't know for certain if the state will see their below-assessment purchase as a strong proof in and of itself. (Better safe than sorry, I'd say.)
Posted by: Jamie Smith Hopkins | August 20, 2010 4:27 PM
I appealed and found the entire process entirely reasonable. Our purchase price was right at HALF of the assessed value. We gave them our purchase info and another comp that was right at the same price per SF. They dropped our assessment down to a tiny fraction less than we paid - meaning our property tax bill was literally cut in half!
Posted by: fronesis | August 20, 2010 10:07 PM
Thank you - very helpful! I'm months away from doing this but will report back when I do!
Posted by: Sarah | August 23, 2010 11:39 AM
In people's experience, how long does it take to get taxes reassessed after purchase? I mailed in my appeal form and a list of comps after purchasing my home.
Posted by: Stefanie | August 27, 2010 10:57 AM
Stefanie, when did you purchase and appeal? Appeals made within 60 days of a January-June purchase are considered for the tax year starting in July. Appeals made for purchases later in the year are considered for the tax year starting the following July (thus you might not hear back for a while, since there's more lead time).
Posted by: Jamie Smith Hopkins | August 27, 2010 11:15 AM
Are you saying that if I purchase a home for $135,000 in Nov. 2010, that is currently assessed at $275,000, I will not see a tax assessment adjustment until July 2011? So, for 7 months I will have to pay the inflated assessment.
Posted by: Denise | September 12, 2010 1:33 PM
Denise, that's right -- and you'll only see an adjusted assessment July 1 if it's your turn for an every-three-year reassessment or if you appeal by Jan. 1 and win. (Information about appealing off-cycle here: http://weblogs.baltimoresun.com/business/realestate/blog/2009/12/appealing_a_property_assessment_on_an_offyear.html)
Posted by: Jamie Smith Hopkins | September 12, 2010 3:18 PM