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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