Maryland Home Buying and Selling Reports

Home Buyer Tax Credit

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Homestead Tax Credit in Maryland

How the Homestead Credit Is Calculated
The Homestead Credit does not limit the assessed market value of the property but is actually a credit calculated on any assessment increase exceeding 10 percent (or the lower cap enacted by the local governments) in one year. So, homeowners pay property tax on the value of their property as declared in their previous tax assessment plus any increase in value up to 10 percent but nothing more.

For example, if your property was previously assessed at $100,000, but your new assessment is $120,000 (a 20 percent increase), you would pay taxes only on $110,000, which is a 10 percent increase. Taxes are calculated on the $120,000 amount then a credit for the taxes due on the $10,000 is subtracted. If your tax rate is $1.20 per $100 of assessed value, the tax credit would be $120 ($10,000 ÷ 100 x $1.20).

The credit is calculated based on the 10-percent cap for Maryland state property tax

and 10 percent or less(as determined by local governments) for local taxation.

Who Is Eligible
The Homestead credit applies only to owner-occupied properties. The property must be the owner's principal residence. An owner can only receive a credit on one property a year. He or she must have lived in it for at least six months, including July 1 of the year for which the credit is applicable. One exception is if the owner was temporarily unable to live there because of illness or need of special care. A married couple may only have one principal residence.

If a Homestead Credit application is not consistent with income tax and motor vehicle records, homeowners will be required to submit additional verification later.

How to Apply for the Homestead Credit
If your property is eligible for the Homestead Credit, it will automatically be calculated on your tax assessment notice. So it is important that the information as to whether the property is your principal residence is accurate. This is found at the top of your assessment notice.

In 2007, the Maryland General Assembly enacted legislation that required homeowners to fill out a one-time application for the Homestead Credit. The legislation takes effect with the 2008 assessments. If the property is designated as you principal residence, an application was included with your tax assessment notice. Even homeowners who have previously received the credit must apply in order to continue receiving the credit. This form is due by April 1. For more information on the application, call 410-767-2165 in the Baltimore area or on 1-866-650-8783 elsewhere in Maryland.

Some conditions that might make your property ineligible for the credit include:

A transfer to new ownership during that year.
A change in the zoning classification, requested by the homeowner, resulting in an increase value of the property.
A substantial change in the use of the property.
The previous assessment was clearly erroneous.

Nunez v. J.L. Sims Co. Inc., 2003

No knowledge means no liability

An Ohio appellate court has ruled that sellers and their sales associates who were both unaware of the presence of lead-based paint in a home weren't liable for negligence in failing to tell buyers about the paint. Six months after Liz and Jamie Nunez purchased a home, they discovered that their children had elevated lead levels in their blood. The Cincinnati Health Department tested their home and discovered it contained lead-based paint. Under Ohio law, the buyers were required to abate the lead-based paint in the home.

The buyers sued the sellers and the two sales associates, a team acting as disclosed dual agents, claiming they had knowingly violated the federal Residential Lead-Based Paint Hazard Reduction Act of 1992. The act requires that property owners or their agents in transactions involving homes built prior to 1978 disclose any known lead-based paint on the premises and provide a pamphlet describing the risks of on lead-based paint hazards to prospective buyers and renters. The Nunezes also charged the licensees with negligent misrepresentation, alleging that one of the sales associates had told them it was "a waste of time" to have the property inspected since the sellers had no plans to put money into the property.

First, the trial court and then the appeals court rejected these charges and found for the sellers and the licensees. The courts determined that because neither the sellers nor the licensees had any knowledge of lead-based paint in the house and no affirmative duty to discover the presence of the hazard, they weren't guilty of failing to disclose that information and thus violating the act. The federal law doesn't place any duty on homeowners or salespeople to discover the presence of lead-based paint, only to disclose it if the presence is known. The court also noted that the buyers had signed documents during the transaction acknowledging that they understood the potential risks of exposure to lead, understood they had the right to test the property for lead, and chose not to have the property inspected.

Next the courts considered the negligent misrepresentation charge against the licensees. Negligent misrepresentation occurs when individuals, in the course of their business, knowingly supply false information with the intent to deceive. These false statements must be material to the transaction and must be justifiably relied on by a third party. Finally, acting on the false statement must cause damages to the third party in order for the statement to be considered negligent misrepresentation.

Here the court found that the licensees' statement that an inspection would be "a waste of time" didn't provide false information about the property. The sales associates said that they'd made the statement only to indicate that the sellers wouldn't make alterations to the property and were unwilling to lower the price or make repairs to the property. In addition, the court noted that the buyers had been given the opportunity to have the property inspected and declined to do so.

Source: NAR Realtor.org Law and Policy

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