When you think of tax season, the first things that come to mind are the Internal Revenue Service and April 15. However, if you are looking to take advantage of Maryland’s real estate tax season, there’s no time like the present.
Maryland offers three different real estate tax relief programs, two of which have annual application deadlines on October 1. The State Department of Assessments and Taxation (SDAT) makes it easy to apply, provided you know which tax credit is right for you or your clients.
Do you need the Homeowners’ or the Homestead? And why would renters need a property tax credit? Let’s take a closer look at what each of these three options has to offer and how you receive the full benefits to which you are entitled.
Homestead Tax Credit
The credit that most are familiar with is the Homestead Tax Credit. Not only is this offered to all owner-occupied properties, but it is also now a part of the home purchase process.
The Homestead Tax Credit is essentially a cap on property tax increases. While property assessments may rise dramatically, the Homestead Credit ensures that property tax bills will not. Maryland residents receive a credit for taxes owed on assessment increases that are over 10% of the prior year.
There is a catch: to receive this benefit, you must submit a one-time application to SDAT. To make it easy for buyers, a notice about Homestead eligibility now appears in the Residential Contract of Sale (Item 55), and an application is given at settlement. Legislation that went into effect on June 30, 2022 also allows individuals to retroactively claim credits to which they were entitled in a previous year.
More information on the Homestead Credit and the application form can be found at dat.maryland.gov/homestead.
Homeowners’ Tax Credit
Unlike the Homestead Credit, the Homeowner’s Tax Credit is restricted to those making less than $60,000 in household income and who have a net worth under $200,000 (excluding the value of their home and retirement accounts). The state uses a sliding scale to cap property tax amounts to a certain percentage of annual household income.
To claim the credit, homeowners must reapply each year and certify that they meet the income and asset thresholds. The application cut-off is October 1; however, those applying for the credit by April 15 can have the credit applied directly to their annual property tax bill.
If homeowners missed claiming this credit when they were eligible, new legislation allows them to claim a retroactive credit under certain circumstances. It is also recommended that home buyers proactively apply for the credit before closing on the property, as this can reduce the amount of prepaid taxes charged at settlement. For more information, visit dat.maryland.gov/homeowners or email sdat.homeowners@maryland.gov.
Renter’s Property Tax Credit
The name of this credit often causes real estate professionals to do a double-take. Why would renters get property tax relief?
Renters indirectly pay for the costs of their landlord’s property taxes in their monthly rent payments. Therefore, Maryland provides a similar benefit to what property owners receive under the Homestead and Homeowners’ Credits.
The Renter’s Credit is offered to those of limited incomes who are over 60 years of age or permanently disabled. It can also be granted to younger residents with a dependent under the age of 18 if they do not receive other forms of housing assistance.
Just like with the Homeowners’ Tax Credit, recipients must apply annually and meet income and asset requirements. Renters can receive a credit of up to $1,000, which is calculated by comparing their assumed property tax payment (15% of gross rent) to their annual income. Information on how to apply, and well as charts to estimate the Renter’s tax benefit, can be found at dat.maryland.gov/Pages/Tax-Credit-Programs or by emailing sdat.renters@maryland.gov