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.
Categories: Homestead Property Tax Credit, Property taxes
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Comments
Jamie,
How can I tell if the homestead tax credit is being received? Can I look it up on Md property tax website?
Posted by: Darwin Rules | September 15, 2011 3:42 PM
Hi, Darwin Rules -- you got a sneak peak at this post, because it went up early by accident! (Hope you didn't come back later on Thursday and wonder what the heck happened after I took it down.)
You can go to the assessment site, http://sdatcert3.resiusa.org/rp_rewrite, to see if a property is in the records as eligible for the credit -- the website will note whether the property is on the books as a principal residence or not. But that won't tell you if someone is getting any monetary benefit from the credit.
For that, you need to check out the jurisdiction's property-tax lookup site, if they have one. Here's Baltimore's: http://cityservices.baltimorecity.gov/realproperty/
Posted by: Jamie Smith Hopkins | September 16, 2011 7:39 AM
Is the heir required to report the transfer of the property to SDAT? There is a house in my neighborhood where the previous owner died 10 years ago, but the SDAT record still shows the property being owned by deceased person but not the heir.
Posted by: MCG | September 16, 2011 9:24 AM
MCG, the land records are supposed to be updated to reflect the new ownership. If they're not, it's possible that an estate for the deceased owner was never opened or completed. You can find estates here: http://jportal.mdcourts.gov/willsandtrusts/index.jsf
Posted by: Jamie Smith Hopkins | September 16, 2011 9:30 AM
You'd be surprised at how many times the estate is NOT opened. I see it all the time. Many times the heirs just take over the property & do not transfer anything, rerecord or modify they just continue to send in the funds to the bank as if nothing happened. Mostly this is because the heirs can not afford to do have anything transfered. The problems arrise when something else happens like a fire or bank wants the property back or taxes are deliquent. More often than not the bank doesn't even know the homeowner is deceased.
Posted by: pigtown girl | September 20, 2011 12:49 PM