Judy,
With the homestead tax credit, your tax is always less than it would be
without the credit. But your tax does go up, sometimes even when your
assessment goes down. Let me try to explain with an example using
simple, small numbers.
Suppose that in 2007, an owner occupied principal residence was assessed
for $1000 and with a tax rate of 2%, the tax was $20 (actually, the City
tax rate is a bit more than 2%, but I am trying to use very simple
numbers here). Then, in 2008 when assessments went way up, the property
was reassessed for $2500. Since the increase of $1500 is phased in over
3 years, the assessments and tax (without the homestead tax credit) for
each year are:
2007 Assessment $1000 tax $20.
2008 Assessment $1500 tax $30.
2009 Assessment $2000 tax $40.
2010 Assessment $2500 tax $50.
And let us suppose that the assessment in 2011 was reduced to $2000
(when most of us got reductions in our assessments). A reduction in
assessment takes effect immediately, i.e. it is not phased in. Now, we have
2011 Assessment $2000 tax $40.
2012 Assessment $2000 tax $40.
2013 Assessment $2000 tax $40.
Now, let's figure in the homestead tax credit (which shows on your bill
at "City assessment credit." Your effective assessment (the assessment
that your actual tax is based on after the homestead tax credit is
figured in) goes up a maximum of 4% compounded each year; So:
2007 Effective assessment $1000 tax $20.00 Homestead tax credit $0.00
2008 Effective assessment $1040 tax $20.80 Homestead tax credit $9.20.
2009 Effective assessment $1082 tax $21.64 Homestead tax credit $18.36.
2010 Effective assessment $1125 tax $22.50 Homestead tax credit $27.50.
2011 Effective assessment $1170 tax $23.40 Homestead tax credit $16.60.
2012 Effective assessment $1217 tax $24.34 Homestead tax credit $15.64.
2013 Effective assessment $1266 tax $25.32 Homestead tax credit $14.68.
Note that I have rounded each assessment to the nearest dollar.
As I hope you can see, your tax goes up 4% each year as long as it stays
below what your tax would be without the homestead tax credit. So you
do benefit from the homestead tax credit. If you look on your tax bill,
it will show the tax without the homestead tax credit (which I suspect
will be quite a bit more than you have ever paid), a city assessment
credit (the homestead tax credit), and the actual tax that you have to pay.
Let me take another example now to show the situation that people who
recently bought their houses are in. Suppose someone paid $2600 for a
house in 2006. Based on the sale price, the house was reassessed for
2007 for a little bit less than the purchase price, say for $2500. Note
that for the first tax bill after a property is purchased, there is no
homestead tax credit. And let us suppose that when the house was
reassessed in 2008, the assessment remained at $2500. Now, there is no
homestead tax credit because the assessment has not gone up. And let us
suppose that the assessment was reduced in 2011 to $2000 (as most of us
got reductions this year). Now, the figures look like this:
2007 Assessment $2500 tax $50, no homestead tax credit.
2008 Assessment $2500 tax $50, no homestead tax credit.
2009 Assessment $2500 tax $50, no homestead tax credit.
2010 Assessment $2500 tax $50, no homestead tax credit.
2011 Assessment $2000 tax $40, no homestead tax credit.
2012 Assessment $2000 tax $40, no homestead tax credit.
2013 Assessment $2000 tax $40, no homestead tax credit.
As I think you can see, those who bought houses during the housing
bubble are paying a lot more in taxes than those of us who bought our
houses a long time ago.
I hope that my explanation makes sense to you. The point is that the
increase in your effective assessment is limited to 4% per year
compounded even though your actual assessment may be much higher than
your effective assessment.
BTW, for State tax purposes, the homestead tax credit is such that your
effective assessment goes up a maximum of 10% per year. But because the
State tax rate is much lower than the City tax rate, I have not bothered
to illustrate the State property tax. Note that both the City and State
property taxes are on your annual real estate tax bill. Also, the CVCBD
surtax works like the City tax i.e. the effective assessment for CVCBD
surtax purposes is the same as the effective assessment for City tax
purposes.
In my own case, the City tax without the homestead tax credit for this
year was $4050.65, and this was quite a bit lower than last year. But
with the homestead tax credit, I actually paid a City tax of 2164.90.
This was about 4% more than last year.
I am copying our City Council members and the President of CVCA in case
they wish to use this to explain the homestead tax credit to their
constituents.
Perhaps it does take a mathematician to try to explain the homestead tax
credit, but the homestead tax credit does save all of us who have owned
our homes for a while quite a bit of money.
Steve
On 12/1/2011 11:48 AM, judy berlin wrote:
I had my taxes go up as a result of the homestead act, How does that
work? What is the benefit if any of the homestead tax?
judy
On 11/30/2011 08:58 PM, Stephen J Gewirtz wrote:
I received an ad in the mail today from an outfit called "Value
Appeal." It shows that my current assessment is $178,600 (the
correct figure) and that if I pay them $99, I should be able to
reduce my assessment to $124,285 based on information they will
supply concerning comparable sales. Since a house two doors from
mine just sold for $200,000 in September, I find it hard to believe
the claim. The ad also claims that I can reduce my real estate taxes
by a total of $3690 until the next reassessment (in January, 2014).
Because of the homestead tax credit, I know that that is totally
false. And I have no idea whether the advertiser is or is not
legitimate.
If you have owned your house for a number of years, you probably had
your assessment go way up in January, 2008 and then go down last
January. But thanks to the homestead tax credit, you probably are
being taxed on nothing close to your assessment. Five years ago, my
assessment was a little more that $83,000, and thanks to the
homestead tax credit, my effective assessment has gone up by only 4%
per year compounded for City and CVCBD tax purposes and 10% per year
compounded for State tax purposes. Therefore, I really gain nothing
by lowering my assessment to $124,285 even if the claim that I can do
so is true.
On the other hand, if you bought your house just a few years ago and
were reassessed almost immediately based on having paid a high price
during the real estate bubble, you might gain by appealing your
assessment since you are getting little or no benefit from the
homestead tax credit. At the same time, it is not hard to get
information about comparable sales without paying $99. According to
the ad, an appeal has to be filed by December 31 (I just looked
online, and the deadline is the first business day after January 1).
You have the right once a year to appeal/protest your assessment.
Let me add that CVCBD was told by the City to expect a further
reduction in assessments when we are reassessed again in January,
2014. Nationally, because of the number of foreclosed houses that
have yet to go on the market, prices are still dropping and are
expected to continue to drop. I have no idea what is happening with
home prices in Charles Village.
Steve
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