Judy,
In a nutshell, the homestead tax credit says that your effective
assessment, for City tax purposes cannot go up by more than 4% from one
year to the next. In other words, if you had a low assessment a few
years ago, then no matter how much your actual assessment goes up when
your house is reassessed, the effective assessment can only go up by 4%
per year compounded, so you keep getting the benefit of that low
assessment from years ago.
To use my situation as an example, my assessment was a little bit more
that 83K four years ago (because the reassessment 6 years ago was phased
in over 3 years). Going up 4% per year compounded means that my
effective assessment will reach double that figure, i.e. will reach
$168K, in 18 years from 2007, i.e. in 2025. So even though my current
actual assessment is 178K, my effective assessment for this year is only
4% more than it was last year, and my effective assessment will continue
to be much less than the actual assessment for years unless our actual
assessments go way down.
On the other hand, since the effective assessment for State tax purposes
can go up by 10% per year, I probably will be paying State tax on the
full actual assessment in about 2015, depending on what happens to our
assessments when we are reassessed in 2014. Note that CVCBD was warned
by the City to expect surtax revenue to fall more, so the City
apparently thinks that assessments will go down some more in 2014. I
will not be so bold as to try to predict what will happen to housing prices.
Steve
On 7/10/2011 12:59 PM, jberlin wrote:
thanks Steve. What is the homestead tax credit based on? Not % but
the original figure used as the base?
On 07/09/2011 03:52 PM, Stephen J Gewirtz wrote:
Judy,
Think of it this way: Three years ago, thanks to the homestead tax
credit, my tax was about $2000. And over the following three years,
it went up by about $100 per year, so this year it is about $2300.
Without the homestead tax credit, my tax last year would have been
about $6000. Instead, it was about $2200. And this year, it would
have been about $4250. Instead, it is about $2300.
The point is that your tax goes up by slightly more than 4% per year
(City tax goes up by 4%, and State tax, which is much smaller, goes
up by 10%) until it reaches the amount the tax would be without the
homestead tax credit.
In your case, it may be that your assessment was much lower than 116K
nine years ago, and in going up a little more than 4% each year,
your tax still has not caught up with your 116K assessment.
Your bill shows what you would pay without the homestead tax credit,
and it shows how much the homestead tax credit is saving you (shown
on the bill as City assessment credit and State assessment credit).
Be glad you are getting some sort of break on your taxes.
And feel sorry for those who have bought houses in the last several
years. If they bought their houses at the height of the real estate
bubble, they not only paid too much but they were assessed and taxed
based on on what they paid. This year, their taxes are down, but
they are still paying a lot more than we are.
Steve
On 7/9/2011 1:31 PM, jberlin wrote:
i appreciate everyone's response. However I still don't get it. It
sounds as if I am still paying the tax for last years assessment and
then some. 3 years ago my assessment was 116k. It went up to 133k.
Now it is back down to 116k. Yet I'm paying more than the previous yrs.
On 07/08/2011 05:52 PM, Stephen J Gewirtz wrote:
Joshua is right about how the taxes work. Under the homestead tax
law, if your home is owned by you and is your principal residence,
your effective assessment (what you actually pay taxes on) can go
up by no more than 10% per year compounded. The 10% figure is used
for state tax purposes (if you look at your bill, you will see that
it shows both a City tax and a State tax). And the counties and
Baltimore City are allowed to use the 10% figure or to adopt a
lower figure -- Baltimore City uses a 4% figure -- for local tax
purposes.
If you look at your tax bill, it shows a State tax rate of 0.112%
and a City tax rate of 2.268% of the assessed value of your house,
and it gives the State and City taxes based on your assessment and
based on those rates, as well as a total tax. Those two numbers
will be a lot less than they were last year because of the lower
assessments. Those numbers reflect what you would pay if there
were no homestead tax credit.
The next two lines on the bill are a State assessment credit and a
City assessment credit. Those lines represent how much you are
saving because of the homestead tax credit. And the line after
that is the net tax amount, which is how much you have to pay if
you pay in August or September (you get your tax reduced by one
half percent if you pay in July).
Let me take my own house as an example. Six years ago, my house
was assessed a little bit more than $83K. Three years ago, it was
assessed for a little bit more than $255K, i.e. it a little bit
more than tripled. This year, it was assessed for a little bit
more than $178K.
So, six years ago, five years ago, and 4 years ago, I paid a tax on
$83K of assessment (actually, I paid less than that. because the
$83K was an increase over the previous assessment, and that
increase was phased in over 3 years). Then, three years ago, I
paid an actual State tax based on an assessment of $83K * 1.10 and
a City tax based on an assessment of $83K * 1.04. And I paid an
actual tax that went up similarly each of the following two years.
So last year, my actual State tax was based on an assessment of
$83K * 1.10^3 =. $83K * 1.331, and my actual City tax was based on
an assessment of $83K * 1.04^3 = $83K * 1.124864. These figures
were way below the actual assessment of $255K (actually, that $255K
was phased in over 3 years, but the phase-in did not affect the
actual tax)
For this year, my assessment went down to $178K (and an assessment
decrease takes effect immediately rather than being phased in over
3 years as an increase would be). But my actual State tax is based
on an assessment of $83K * 1.10^4 = $83K * 1.4641 = $121,520, which
is much less than the actual assessment of $178K. And my actual
City tax is based on an assessment of $83K * 1.04^4 =. $83K * 1.17
= $97K, which is also much lower lower than the actual assessment
of $178K. The difference between a tax based on the actual
assessment and the tax based on having the effective assessment go
up each year by no more than 10% for State tax purposes and by no
more than 4% for City tax purposes is the homestead tax credit
shown on the bill as State assessment credit and as City assessment
credit respectively.
A useful figure is how long it will take your tax to double. Your
tax can double in x years, where x is the solution to the equation
1.10 ^ x = 2. In other words, your State tax will double in 7.27
years (i.e. will almost double in 7 years, and will a bit more than
double in 8 years). Your City tax can double in y years, where y
is the solution to the equation 1.04^y = 2. In other words, your
City tax can double in 17.67 years (i.e. will almost double in 17
years, and will a bit more than double in 18 years). One way to
approximate this doubling time is to divide the annual percentage
increase into 72. So, for example, State tax can double in
approximately 72 / 10 = 7.2 years, and City tax can double in
approximately 72 / 4 = 18 years.
And yes, Joshua is right about how the system can be viewed as
unfair to someone who has just bought a house. If mine had sold
three years ago for its assessed value of $255K, the new owner
would have paid a tax based on an assessment of $255K, i.e. would
have paid roughly triple what I paid. And this year, he would have
gotten a sizable decrease to a tax based on an assessment 0f $178K,
but still would be paying a lot more than I am paying.
Your assessment is what the assessor estimates that your house will
sell for. So without a homestead tax credit, you basically are
taxed on what the State estimates that someone will be willing to
pay for your house. What the homestead tax credit does is to give
some protection to long term homeowners so that, for example, when
the assessed value of my house tripled three years ago, my tax did
not triple over 3 years (since the increase is phased in linearly
over 3 years). It enables long term homeowners to keep their
houses when their houses become far more desirable to people
seeking homes.
Steve
On 7/8/2011 2:48 PM, Joshua Fruhlinger wrote:
OK, so I just looked at my own email and realized that was way too
complicated an explanation. Here's a simpler one:
Your property tax bill is EITHER 2.268 percent of the assessed
value OR 3 percent more than you paid the previous year, whichever
is LOWER. If you've lived in your house since before the
property bubble, your assessment probably went up very fast in the
mid '00s and then came down a somewhat (but not back to the
original level) in the late '00s/early '10s. So for many people,
even if the assessment has gone done, a 3 percent INCREASE over
your previous year's bill is still going to be LESS than 2.268
percent of that reduced assessment. Basically, the taxes you've
been paying still haven't caught up to your assessment, and will
keep increasing 3 percent a year until they do.
(Note that I'm not sure if 3 percent is the exact value, but it's
something close to that if not. And this only applies if you live
in the property we're talking about -- that's why it's called the
"homestead tax credit" -- and if you were living in it the
previous year. The first year you own the house, youpay 2.268
percent of the assessed value, and that's your baseline going
forward.)
jf
On Jul 8, 2011, at 2:13 PM, Joshua Fruhlinger wrote:
If you're getting a homestead tax credit, your tax can only go up
a little bit every year (I think 3 percent) as long as you stay
in your home. But it will go up that amount until it hits the
amount you'd pay without the credit. After the housing bubble in
the mid-'00s a lot of property's assessed values went up so fast
that people with the tax credit never caught up.
For instance:
Say in 2006 the assessment of your house doubled from 100K to
200K. Your theoretical tax would go from $2,268 to $4,356. But
because of the homestead tax credit, your actual tax can't go up
more than 3 percent a year. So in 2006 you'd owe $2,336, in '08
$2,406, and in '09 $2,478.
Then in 2009 they reassess your value down, from 200K to 150K.
Now your theoretical tax drops from $4,356 to $3,402. But
because of the homestead tax, you aren't paying anywhere near
even that reduced amount. So the tax you actually pay in
practice in 2010 is still a three precent increase -- $2,552.
Your actual tax bill would only go down if your house lost a lot
more value -- if it were assessed at less than $112,500 or so,
with these numbers.
jf
On Jul 8, 2011, at 1:59 PM, jberlin wrote:
Have many people received property tax bills higher than last
year even with the lower property assessment?
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