Ever since Maryland state lawmakers decided to prevent landlords and owners of second homes from claiming tax breaks they shouldn't receive, more homeowners who must now apply for the Homestead Tax Credit are increasingly confused about when, where and how to apply.
Some, like reader Bob Brandell, aren't even sure if they qualify for the credit.
Referring to the last question in the application - "Is any portion of the principal residence rented?" - Brandell asks:
"I have owned and lived continuously in my home in Baltimore for the last nine years. However, I rent out two bedrooms to a couple of college students and we share the rest of the house (kitchen, living room, bathrooms, etc.).
"The rental income and address appears on my 1040 tax returns," Brandell said. "By marking 'YES' on the application, do you know if this prevents me from claiming the Homestead Tax Credit?"
First, we want to stress the importance of answering truthfully on all such applications.
The idea behind having homeowners apply for what used to be an automatic tax break was to weed out those who were unfairly claiming it in the first place. Lawmakers believe that the state is losing millions from property tax revenue to owners of rental property or second homes who don't qualify for the credit.
With that said, Brandell shouldn't worry too much about answering yes on this particular application.
While this doesn't necessarily apply to Brandell's situation, homeowners who rent out part of their home (say, a building with a first-floor retail operation and second-floor residence or who break up their home into apartments) can still receive the credit on part of the value of their home. So Brandell wouldn't lose the credit entirely, since the home is still his primary residence.
In Brandell's case, if he is indeed sharing the kitchen, bathroom and other parts of the house with his renters, he will qualify for the entire credit.
"The only time the Homestead Tax Credit is affected is when you cut out a separate living residence for your renter," said Robert Young, associate director of the state Department of Assessments and Taxation, which administers the Homestead Tax Credit. "Homeowners who do this are supposed to register with the [local jurisdiction's] housing department that they're renting out an apartment.
"Our office will check that with the housing department to verify that's true," Young said. "And then, we'll also have our inspector make a field inspection. If we see two different mailboxes for the building, we'll know there are two different residences there."
Once a judgment is made by the state's assessment office on whether you qualify for the credit, Young said, a letter will be mailed to your home to explain the determination. Homeowners are given 30 days to respond. If no response is received, the state sends out a second letter to explain that a decision has been made on your home. You may appeal the decision if you disagree.
"Before we did anything to the detriment of the homeowner, we'd contact you first," Young said. "Having renters does not prevent you from getting the credit. It's unusual, but we do have people who get the tax credit on half the value of their home. You'd still get credit for the residential part."
If you have further questions about the Homestead Tax Credit, you may call 410-767-2165 in the Baltimore metro area or 866-650-8783 toll free elsewhere in Maryland. You can also visit the department's Web site at www.dat.state.md.us.
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