What happens to the homestead credit when a homeowner dies?
The state's homestead credit, a tax break designed to cap annual property-tax increases for homeowners, doesn't usually pass from one owner to the next. If Joe Schmoe buys a home from John Q. Public, Schmoe doesn't get Public's credit, other than for the rest of the tax year in which the purchased happened.
Turns out there is an exception, though. If the owner dies, his or her heirs inherit the credit as well as the house as long as they make it their primary residence.
Why? Because the typical condition for a change in the homestead situation is a "transfer for consideration" -- a sale involving money. Inheriting is not a transfer for consideration, says Robert E. Young, director of the state Department of Assessments and Taxation. So the homestead credit calculation continues on as if there were no change in ownership.
"If ... you are receiving a homestead on another property, then you're not entitled to keep it," Young added. (Homeowners can receive a homestead credit on only one property, their primary residence.)
The inheritance quirk of the homestead law came up when I was looking into claims made about a Baltimore City Council candidate, which just reminded me that however much I think I know about property taxes, there's a never-ending supply of additional information out there.
The homestead program caps annual increases in owner-occupiers' taxable assessments to varying degrees across the state. In Baltimore and Baltimore County, it's 4 percent a year. Even with the drop in home values over the last several years, some homeowners' credits are sizable -- especially people who've lived in their homes for many years. So Junior could really benefit financially from inheriting a parent's homestead credit.
Some homeowners have been surprised by another homestead-credit exception: If you make more than $100,000 in improvements to your property, you get taxed on the full amount of those improvements. This quirk has caught up several years late to some homeowners who simply bought a newly rehabbed property, and it changed their bills in a big way. More on that here.