Homeowners last year were shocked to see the average home-value assessment in Maryland rise nearly 70 percent, the biggest increase in a quarter century.
Thousands appealed their assessment, a key factor in determining their state and local property tax bills.
Now the hot real estate market has cooled. As my colleague Jamie Smith Hopkins reports today, the average sale price of houses has dropped in the past year in one-third of Baltimore neighborhoods and in the majority ofsuburban communities in the region. Most decreases are mild, but some locales have seen prices fall 10 percent or more.
That raises the question: If your assessment soared during the hot market, can you now get your tax bill lowered because prices are falling?
The answer isn't as obvious as it would seem.
"For existing homeowners, they have to do the math to make sure it makes sense," says Bryan W. Young, a real estate tax appeal attorney in Towson. "Are you going to save money by doing it?"
It's not so simple because the formula for figuring property taxes in Maryland provides homeowners some tax relief from soaring house values. The fact that your assessment went up 70 percent doesn't mean your tax bill went up that much. In fact, it wasn't anywhere close to that. This also means that even if your house is worth less today, the value might not have fallen enough to reduce your tax bill.
Still, if you live in an area where prices have weakened substantially or you recently snatched up a bargain, you may want to run the numbers.
Most homeowners who file an appeal do so within the 45-day deadline after receiving the new assessment notice, which comes out every three years. But if you missed that chance or you think your home value has changed significantly, you don't have to wait another three years. You can appeal by requesting what's called a "petition for review."
As of last week, 600 homeowners and business owners across the state have petitioned for a review this year. Wilton P. Stansbury Jr., state supervisor of assessments, says the reason for such a low number is that the homestead credit keeps tax bills in check from year to year. That's the relief built into the tax formula.
Basically, the credit limits the increase in the amount of assessment that's subject to state and local taxes each year.
Say the amount you paid taxes on was $250,000, but the reassessment concludes your house is worth $400,000. That $150,000 increase will be phased in over three years. Here's where homestead credit comes in. For state tax purposes, the amount subject to tax can't increase more than 10 percent each year on a principal residence.
So in the first year, your state property taxes would be based on $275,000, 10 percent more than the year before. The amount subject to tax would go up 10 percent each year thereafter, so by the third year your taxes would be based on $332,750, not $400,000.
Cities and counties set their own caps, although they can't exceed 10 percent. Baltimore City and Baltimore County, for instance, have 4 percent caps. So in the above example, residents there would pay local property taxes based on $260,000 the first year.
So to save money by petitioning for a review, you need to show a sizable reduction in the home's value, Young says. "You want to get below your current assessment cap," he says.
There are times when homeowners should clearly petition for a review.
One of those is if you've recently purchased a house for less than its assessed value. New homeowners don't get the benefit of the homestead credit in the first full tax year, and can end up paying more taxes than necessary if the assessment overstates the market value of their home.
Say a builder constructed a house on speculation that was assessed for $1 million. The house languishes on the market for years, until you buy it for $700,000. "That's obviously the time you want to appeal," Young says.
This won't work, though, if you buy a home in foreclosure at a bargain price. Market values are pegged to sales involving a willing seller and buyer, not someone forced to sell at a discount.
Officials say homeowners petitioning for a review these days often do so because they missed the earlier deadline to appeal their assessment.
"Or, they think the market has changed considerably and want to see if it will make a difference," says Doris J. White, supervisor of assessments in Frederick County. Sellers may find that houses are staying on the market longer these days, but the homes often still sell at prices higher than the assessment, she says.
You don't need to hire a lawyer to petition for a review.
Start by requesting a petition through your local assessor's office or downloading the form from the Maryland Department of Assessments & Taxation Web site at www.dat.state.md.us/.
Petitions must be filed by the beginning of the year to affect the July 2008 tax bill.
(Those who purchased a house in the first half of the year have 60 days from the day their deed is recorded to appeal their assessment. So, if you bought a home in June, you still have time to file a regular appeal that could affect your current tax bill, says Joseph V. Glorioso, supervisor of assessments for Anne Arundel County.)
After filing a petition, you will receive a date for a hearing where you can make your case.
"They need to give us information as to why the assessment is incorrect," says Laura A. Foussekis, special assistant to the state director of assessments and taxation. "So they would be looking for sales of similar properties in their area that are lower than the assessments."
You also should request before the hearing a copy of the worksheet that the assessor used when valuing your home to make sure the information on the home's features are correct.
If you're unsatisfied with the review's results, you can appeal to the Property Tax Assessment Appeal Board. From there, you have one more avenue of appeal, to the Maryland Tax Court.
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