Beginning next week, Maryland property owners are in for a little surprise with their latest assessment notices. It’s an application for the Homestead Tax Credit. For most people, this probably won’t be a big deal. They need only fill it out and mail it back to the Maryland Department of Assessments and Taxation, and fortunately they have four years to do so. But for those who aren’t particularly sophisticated about monitoring such paperwork, the consequences of neglect could be severe – a sizable increase in their property tax bill, perhaps in the hundreds of dollars, starting in 2012.
What’s going on? The Homestead Tax Credit has long held a unique place in the often-confusing world of property taxes. Put simply, it’s a cap on how much a property assessment can rise each year. The cap is set at 10 percent by the state, but Baltimore and many counties set it much lower – 4 percent to 5 percent, in many cases.
Unlike most tax credits, a person receives it automatically. It’s only when a property owner declares himself ineligible – that is, the property is reported to no longer be the principal residence of the owner – that the credit is rescinded by the state.
But legislation approved unanimously by the General Assembly and signed into law by Gov. Martin O’Malley last spring changes all that. Property owners are expected to make a one-time application for the tax credit. It’s an effort to weed out scofflaws who may take advantage of the program even though they rent out or have some other commercial use for the property.
That’s a legitimate concern.
But the change in the law has also put people who have a perfect right to the tax credit at risk. The recent wave of foreclosures provided ample demonstration that not all property owners fully understand their financial affairs.
How many people abuse the Homestead Tax Credit and how many legitimate beneficiaries might be unfairly left behind by the change? No one knows. But even with the recent slowdown in real estate values, it’s likely that the tax credit continues to benefit hundreds of thousands of people.
What’s needed is an outreach and consumer education program that goes well beyond a form letter attached to an assessment notice.
Fortunately, the problem isn’t imminent. The law gives homeowners until 2012 to respond, though they would be well advised to act now rather than forget to later. However, the onus should be on state government to make sure that even the most befuddled homeowner is made to understand the consequences of inaction.
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