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In defense of the homestead credit

A reader named Erich wrote in the other day to defend the Homestead Property Tax Credit, which acts as a cap on spiraling property-tax bills for homeowners but as a side effect leaves neighbors in similar homes with very different bills to pay.

A former Baltimore resident, Erich bought in Pasadena in 2007 and homes values have only fallen since. So he says he isn't a big homestead recipient -- he isn't getting a break from the credit at all. But he likes the idea that his bill will be capped if assessed values ever do go up beyond Anne Arundel County's 2 percent-a-year limit.

Here's what he wrote:

I completely disagree with the argument that there is something wrong with the Homestead credit simply because two neighbors with similar houses pay extremely different tax amounts. So what? When you purchase a house your taxes are listed on the settlement statement, it's not something the state/city surprises you with. The Homestead credit is there to protect homeowners from drastic changes in their tax bills based on the revolving property tax assessments that happen every 3 years. ... So owners that buy at a certain time and lock in the credit should be able to get that smooth curve in their tax bills. ...

In the 'robbing peter to pay paul' example, it's not transferring tax burden from one house to another because the newer neighbor also gets the tax credit, it just happens to be on a higher assessed value. ... As far as 'double dippers' and landlords getting the credit, go after them, they are breaking the law.

The homestead credit is statewide, but the cap on the amount of increased assessed value you can be taxed on in any given year varies from jurisdiction to jurisdiction. It's 4 percent in Baltimore and Baltimore County, for instance, and 5 percent in Carroll and Harford. Anne Arundel's 2 percent cap is one of the lowest in the state.

I mentioned to Erich that his email sums up one of the arguments made in favor of the homestead program as it is now -- that everyone qualifies for the cap in property-tax increases on their principal residence. (The other main argument is that the cap helps tamp down on the problem of homeowners with spiraling values being taxed out of town.)

But what about the consistent opinion the Maryland attorney general's office has taken on the program -- that it violates the state's constitution because it doesn't allow "uniform" taxation among homeowners?

"Actually, I believe there is a huge argument that it meets 'uniform' taxation: the rate is the same for the entire jurisdiction," Erich responded. "The same way that income tax is the same for two people making the same salary, and for one reason or another, one of them has more deductions then the other, the realized rate will be different."

He added, "I have some of the highest taxes in my community. But I bought in 2007 whereas many of my neighbors have been there since the 70's and 80's, so when the market dropped I was proactive about getting my house reassessed and my bill dropped while many of [theirs] kept going up (slowly). So I think the credit works exactly the way it should."

What are your feelings on the homestead credit? Good as is, in need of tweaks or due for an overhaul of some sort?

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