The Maryland Homestead Tax Credit is a property tax credit designed to limit the impact of increased property valuation on a homeowner’s taxes. The credit applies only to primary residences (defined as the place you live for more than 6 mos. of the year).
The credit effectively limits the increase in your property taxes to 10% per year.
For example, say your house was worth $200,000 in 2007 and was just reassessed at $300,000 (wouldn’t you be lucky in this market?!) If the property is not your primary residence, your property taxes will be assessed on the full $300,000. If the property is your primary residence and you apply for the homestead credit, your taxes will only be on $220,000, 10% more than the prior year. The taxes will increase each year at 10% until the new assessment value is reached.
The Credit Applies to State and Local Taxes
By law, the homestead tax credit provisions compel the State and all local jurisdictions to limit property tax increases to 10% per year.
Maryland Homestead Credit Qualification Rules
- The house must be your primary residence for 6 months of the year, including July 1 of the application year. The state comptroller’s office attempts to verify this by checking Motor Vehicle Administration (MVA) records, voting registration, and the address on your MD state income tax. The only exception is if the owner vacates the property to get special care (e.g., an elderly person is placed in a nursing home for part of the year).
- The property was not transfered to new ownership. (If it was, the new owners must apply).
- The property was not subject to zoning changes.
- The property was not materially improved. (for instance, by building a house on a previously vacant lot).
- The previous assessment was not erroneous. (meaning, it wasn’t completely ridiculous or in error).
The Credit is not Automatically Applied
This credit is not automatic. You must apply. We think MD could streamline this process by allowing a homeowner to apply at settlement or via their income tax filing. Why they didn’t do this is a mystery to us, except that there’s surely some additional revenue collected just because people put off the application process.
Once you’ve applied once, though, the credit does carry forward each year.
How to Apply
You can apply online. You can also return the form MD sends with your property tax assessment.
The Effect of the Homestead Credit on Rent
Since the Homestead Tax Credit does not apply to rental properties, Landlords who receive a substantially increased property valuation will likely pass these taxes on to their tenants. In fact, most lease agreements provide for an increase in rent when the tax position of the property changes.
(Spirited Photo Credit: rwkvisual at the Westchester County Tax Rally)
