[Chat] prop tax

jberlin jdydee at verizon.net
Sun Jul 10 12:59:35 EDT 2011


  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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