Assessing assessments

Our view : Declining home prices but rising assessments? Yes, it can happen here

January 01, 2009

Here's an unpleasantry awaiting Maryland homeowners in 2009: Even if your home has declined in value this year - perhaps even substantially - and your local tax rates are unchanged, you may be facing a higher property tax bill.

Talk about adding insult to injury. There's nothing quite like taking a heavy dose of theoretical pain (the loss of equity in your home, which you don't see until it's time to sell) with a bracing chaser of higher taxes in the here and now. For about one-third of homeowners, the bad news arrived in the mail this week with the latest round of real estate assessment notices.

How is this possible? It's not a government plot to take your money but a function of the good and the bad of how Maryland assesses property value and most especially the way those assessment increases are capped by state and local governments.

Under Maryland's homestead property tax credit program, your home's assessed value can't go up by more than 10 percent per year. In some jurisdictions, it's much less than that. In Baltimore and Baltimore County, for instance, the cap is 4 percent.

In a rising market, this works out rather nicely to the homeowner's advantage. A home can be worth twice as much as it was a few years ago but tax bills may not reflect that increase for a decade.

Even in a declining market, the tax credit can be helpful. In theory, assessment increases from years past can be nipped in the bud before property owners ever had to pay for them. But, admittedly, there are instances in the three-year cycle when assessments are painfully slow to recognize market downturns.

Property owners have a right to appeal assessments they don't think are fair. But they also ought to keep in mind that for many, thanks to the homestead credit, they're not facing new taxes but old ones that have been deferred. It's a bit like paying for local government on the installment plan. The bill may be spread out but it comes due eventually. Better to pay a little bit more over time than face huge increases when the real estate market is hot.

That's not only to the homeowner's benefit but the system keeps local governments from a boom-or-bust cycle in tax revenue. There's no better way to cap government growth than to avoid sudden largesse (which elected officials usually find some way to spend).

The best news in the assessment front is that while property values are stagnant or down in many jurisdictions, the real estate market has held up better than average. That makes Maryland a safer place to invest in real estate - even if there's a price to be paid, at least eventually.

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