More than 700,000 Maryland property owners are due to receive new state assessment notices this month and many know they won't be taxed on the full value of their homes, thanks to assessment caps the state and many local jurisdictions apply.
But what they probably don't know is that a little-noticed change in Maryland's property tax laws has converted this protection from an automatic benefit to one that each homeowner must apply for -- although most homeowners will have five years to file the paperwork.
"This is huge," said C. John Sullivan, director of the Maryland Department of Assessments and Taxation. "Many people are not aware of it. They look at what they pay on, and that's it.
"We certainly don't want anyone to panic over it."
The new law is intended to identify ineligible property owners who are illegally taking advantage of the caps, but critics say it is an overreaction that could put homeowners at risk of higher taxes.
Failure to apply for the tax credit, which is limited to a taxpayer's primary residence, can be costly. Maryland's Homestead Tax Credit law puts a 10 percent limit on the amount of a home's increased value that can be taxed each year, and many jurisdictions have lower ceilings.
For example, officials in Howard County, where the cap is 5 percent, said the average property-tax savings per household this fiscal year because of the homestead credit is just over $1,100. Anne Arundel officials estimated a similar figure there, where the assessment cap is 2 percent. The caps are 4 percent in Baltimore City and Baltimore County.
Without the caps, Maryland homeowners would have paid a total of $669 million more in property taxes this year, according to legislative analysts.
With the large increase in real estate values this decade, the assessment caps shield longtime homeowners from sudden, large property tax increases.
If current homeowners fail to apply for the credit by the end of 2012, they will be liable for property taxes on the full value of their homes, which could boost some tax bills by thousands of dollars, tax officials said.
People who buy a home after Dec. 31 will have 180 days from the date of purchase to apply for the credit.
Sponsors of the change say they want to protect honest taxpayers but shut the door on crooks.
"Someone tooling around the Internet found that neighbors were renting out houses but were still getting the [tax] credit," said Del. Anne R. Kaiser of Montgomery County, the primary sponsor in the House of Delegates.
There was no easy way for local or state government to discover who was getting multiple credits, she said -- thus the change in the law. "We want to find out who these people are," she said.
But Harold Lloyd, a northern Baltimore County resident and former state assessment official who for years has advised people trying to lower their home assessments without charge, criticized the change.
"People do not work with assessments continuously. They're just normal citizens. Once you get that notice, you just put it aside," he said. Lloyd believes it's a major change that could put many homeowners at risk for much higher bills to fix a minor problem.
"It doesn't make sense to me," he said.
The law took effect Oct. 1 after its approval by the General Assembly and Gov. Martin O'Malley's signature May 17.
Prince George's Sen. James C. Rosapepe said he sponsored the state Senate version after hearing about homeowners in College Park who rent rooms in multiple houses to University of Maryland students and live elsewhere, yet still get the tax credit for their property.
"This is designed to protect ordinary taxpayers," the Democrat said. The Homestead Tax Credit program "is not designed to protect real estate speculators who are trying to game the system." Higher home values "created incentives for crooks," he said.
Homebuyers can apply at the time of settlement, Rosapepe said.
Del. Justin D. Ross, also a Prince George's Democrat, said the change merely brings the Homestead Tax Credit program into line with other tax relief programs for which residents must apply. "Five years is a long lead time, and we can do a lot of public education," he said.
Applications for the tax credit will be included in the reassessment notices set for mailing to one-third of the state's property taxpayers Dec. 28. Sullivan said about 476,000 of those are eligible for the credit. Those who don't respond by filing an application will get follow-up letters, officials said.
A third of the property in the state is reassessed each year.
Sullivan and Robert E. Young, his associate director, said other reasons for the change are the increasing number of people with multiple residences who claim the credit for both homes, and those with a second home out of state.
"We have instances now with properties appreciating, and someone says, 'We're still husband and wife, but he lives in the Ocean City condo, and I live in Baltimore.'" In addition, tax officials in Maryland and Florida consult almost daily, Young said, about which of two homes is a primary residence.
The new applications have the force of a sworn affidavit, Young said, and anyone found being dishonest could face perjury charges.
An automated process will use the applications to check every homeowner's information, including Social Security numbers, motor vehicle records, IRS filings and even utility use at the various addresses.
"This will make them document and demonstrate that is where they reside," Young said. "The only way you can do these checks is to have an application."
Homestead Tax Credit
A change in tax law requires Maryland homeowners to apply for credits under the Homestead Tax Credit assessment cap program instead of receiving them automatically.
Homeowners who receive reassessment notices later this month will get an application and a one-page explanation with their notices. They are asked to return the completed application, or apply electronically on the department's Web site of www.dat.state.md.us, within 60 days. The notice will contain a telephone number that recipients with questions can call.
The law gives people until Dec. 31, 2012, to apply, except for those who buy homes after Dec. 31, who must apply within 180 days of the purchase.
Those who don't respond will be mailed additional notices.
Because only one-third of Maryland property owners receive reassessment notices each year, not all homeowners will be getting them this December. No action is required until a homeowner receives a notice.
[Source: Maryland State Department of Assessments and Taxation]