Thursday, October 26, 2017

Maryland Homestead Tax Credit

There are two Maryland programs that can provide tax relief on your property taxes.

1. Maryland Homestead Tax Credit

The Maryland Homestead Tax Credit limits the amount by which your property tax assessment can increase on your principal residence to 10% or less each year. (The limit in Howard County is presently set to 5% per year.)

Rising Assessments

What this means is that when your house is reassessed (roughly every 3 years), even if the value of the assessment increases sharply, the amount of the property tax you pay will be limited to increasing by no more than 5% a year in Howard County. Typically the increases are phased in over a 3-year period.

The law was enacted to prevent sharply rising property values from causing financial difficulties for long-time residents, especially retirees on fixed incomes.

But You Must Apply

The caveat is that the Maryland Homestead Tax Credit is not applied to your residence unless you submit an application. But once approved the credit is automatically applied each year afterwards.

If you're unsure of the status of your Homestead Credit, you can check your property in the Maryland Department of Assessments and Taxation SDAT Real Property Database.

You can apply by mail or online:

2. Homeowners' Property Tax Credit Program

A separate, much less well-known program called the Homeowners' Property Tax Credit limits your property taxes on your primary residence based upon income thresholds.

Since your net worth must also be below $200,000 (not including your residence and retirement accounts) and combined gross household income must be below $60,000 this program most likely would have the biggest benefit if you suffer a sudden, unexpected financial issue such as job loss.

Also, this affects only the taxes from the first $300,000 of assessment valuation.

The maximum property tax varies as household income increases:
  • First $8000 household income: 0%
  • Next $4000 ($8,000-$12,000): 4%
  • Next $4000 ($12,000-$16,000): 6.5%
  • Above $16,000: 9%
Thus if a household meets the other tests (net worth & $300K assessment limit), the most a household earning $60,000 would pay would be: $0 + $160 + $260 + $3960 = $4380 (adding up the maximum in each of the four brackets), though in practice the $300,000 limit would probably come into play as well.

The excess amount would be received as either a credit on that year's tax bill (if approved by the early deadline of May 1), or after that a revised tax bill or tax credit if approved by the final Sept. 1st deadline.

See Maryland's web site for official information:

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