Timing of buy affects tax bill

Getting home deed before July 1 helps beat increases

Tip For Buyers

February 04, 2007|By Jamie Smith Hopkins

When assessed values are rising rapidly, it pays to know this quirk if you're trying to buy a home: Get the deed in hand before July 1 - your tax bill will be lower. That's especially true if you're buying in an area due to be reassessed the following year.

Why? Follow closely:

The Homestead Property Tax Credit caps increases in taxable assessments for people who live in the homes they own. You don't qualify the first full fiscal year you own it, meaning July 1 through June 30. But afterward your annual increases can't rise beyond the limit set by your jurisdiction - 2 percent to 10 percent in the Baltimore region. (If the previous homeowners qualified for the cap, you'll inherit their taxable assessment for the months leading up to your first July 1 in the property.)

The bottom line: Get that uncapped year over with as soon as possible to lock in lower increases.

Consider this example of a home sold for $425,000 in Baltimore's Mount Washington neighborhood last year. Recorded in the state's system July 3, it was assessed at $229,470 when the buyers moved in. They didn't have to pay taxes on that full amount, because they inherited the previous owner's taxable assessment of about $190,000 - a seemingly nice break.

But they would have been better off completing the sale in June and starting their uncapped year July 1, 2006.

The state recently reassessed the home at $421,060, an increase that's phased in over three years. Their taxable assessment will jump to $293,333 this July. That's an increase of almost 30 percent over the previous full market value, and more than 50 percent higher than the previous homeowner's taxable assessment. City tax bill: $6,711.

If they had bought just days sooner in 2006, they would have paid taxes on the $229,470 assessment last year rather than the discount for the previous homeowner. But their homestead credit would have kicked in this July, capping their increase at 4 percent. City tax bill: $5,460. That monthly savings of about $104 would have more than made up for the extra they would have paid the previous year. And every year following, their savings would have mounted.

The state calculates whether you qualify for the cap based on when your deed was recorded. But if you settle before July 1 and find the deed was recorded afterward, you're not out of luck. A 2005 law allows homeowners in this situation to have the state base the calculation on their settlement date. Residents have 60 days after settlement to apply to their local assessment office.

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