Snapshot of a Property Tax Bill

Several people have asked about their property tax bill. Since a picture paints a thousand words, I am reprinting a letter I received along with the answer for this specific situation. To learn more about property taxes, read my newsletter.

Question:

I recently received my assessment notice and it said that my property value is now $568,130, when it had been $710,360. I expected that such would mean a reduction in my property tax and asked my mortgagee to calculate the escrow needed. They wanted my parcel number and the tax I would pay.

I called the Department of Assessment and Taxation (SDAT) and spoke with an agent there. She said the County Council did not have a new figure but if we used the current system, I would be paying $5,931.50. This is curious since last year when the house supposedly was worth $142,000 more I paid $5,268.77. What justifies a $700 increase?????

Can you explain the rationale that would have a citizen paying a higher property tax when the value of their home had decreased so decidedly?????

I also urge that when the Council convenes to decide the future rate, that they do not increase the rate. I know for certain that my income is not sufficient to pay anything more. As it is I have a house with a tiny footprint and yet I am paying an inordinate amount of tax.

Answer:

Your assessed value will decline from $710,360 in the current levy year (2008) to $568,130 in levy year 2009.

Your tax bill for the current year, however, also shows that you received a homestead credit in the amount of $206,762 with a taxable assessment of $503,598 (i.e., $710,360 minus $206,762). Since the annual growth in taxable assessment for a principal residence cannot increase more than 10% (with the excess growth becoming the homestead credit), and with rapid growth in home values in the recent past, you have built up a sizable homestead credit over the years. As a result, even though the actual assessment is in excess of $700,000 the taxable assessment used to calculate the property tax is just over $500,000. In fact, without the homestead credit, your property taxes would have been $2,123.43 higher this year.

Turning to next year. Since your taxable assessment growth is capped at 10%, the taxable assessment cannot exceed $553,958 in levy year 2009 (i.e., $503,598 plus 10%). SDAT has assessed your property at $568,130 which exceeds your capped taxable assessment of $553,958 and therefore your taxable assessment will increase the full 10%. In addition, your homestead credit will decline from $206,762 to $14,172 in levy year 2009 (i.e., the difference between $568,130 and $553,958).

Since your assessment was lowered, you received the full decline in the first year, as opposed to increases which are phased-in over three years. For the subsequent year (levy year 2010), you have only a small homestead credit left which will be eliminated as your taxable assessment in levy year 2010 will increase modestly to $568,130 at which time your taxable assessment equals the full assessment amount of SDAT. In addition, in the third year of this assessment cycle (levy year 2011), your assessment (and taxable assessment) will remain unchanged at $568,130.

As a final note, the homestead credit is required under state law and reduces your taxable assessment during periods of rapid growth. However, unless the new assessment from SDAT falls below the taxable assessment, taxpayers will not see a decline in their property taxes (assuming the same tax rates and applicable credits).