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City Council Mulls to Reduce Homestead Property Tax Rate to 0%

At last night’s Council meeting, the City Council discussed reducing the Homestead tax credit to 0%. Last year, the Council reducing the rate from 4% to 2%.

Homestead Tax Credit is calculated on any assessment increase exceeding 10% (or the lower cap enacted by the local governments) from one year to the next. Thus the lower the rate a city establishes, the residents get more tax break.

Reducing the Homestead Tax Credit rate results in reduced property tax revenue to the City with a corresponding reduction in eligible residents’ property tax bills.

Last year’s reduction to 2% resulted in an estimated $30,000 reduction in property tax revenue for the City, providing an average annual savings of $121 to the 1,951 eligible owner-occupied homes in the City.

The additional cost (revenue reduction) resulting from lowering the City’s Homestead Tax Credit Rate is estimated at $17,000 for each percentage point.

The State began the Homestead Tax Credit program in the 1980s. It allowed local governments to set, and adjust as desired, the Homestead Tax Credit rate from 0 to 10%. Most jurisdictions rarely, if ever, change their rate. Prince George’s County is required by TRIM to review its rate annually, and to adjust it to best approximate the change in the consumer price index, with a cap of 5%, not 10%.

Some of the smaller municipalities follow the County’s lead and automatically adopt the same rate. Most municipalities in the County have left their rates at the maximum level permitted, 10%. Exceptions are Bowie, which switched from following the County’s rate last decade, to setting a rate of 5% and the Village of Upper Marlboro, which established a rate of 0% in the 1990s.

College Park maintained its rate at 10% until 2004. In 2005 (for FY 2006) the rate was reduced to 1%. That action was taken as a result of City residents seeing an approximate 30% increase in assessments in January 2004. The rate remained at 1% until 2007, when the rate was increased to 4% for 2008 (for FY2009). The rate remained at 4% until last year when the rate was reduced to 2% for FY 2018.

If enacted, among the 19 municipalities in the PG counties, College Park will be the only city offering 0% homestead tax credit. Bowie has 5%, Forrest Heights has 8%. All other 16 cities have 10%.

If the Council decides to make the change, this would be reflected as a reduction to real property taxes in the FY 2019 Adopted Operating Budget.

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