The Maryland Homestead Tax Credit

Did you know that Maryland has a property tax credit that may limit the amount your property taxes increase each year. It is called The Maryland Homestead Tax Credit. The credit limits how much your property assessment increases, thereby limiting your actual tax. My Homestead application was accepted in 2010, but there were no credits until the 2023 thorough 2025 assessments after the covid boom when home prices increased about 30%. We have saved $1,008 since 2023.

We are currently experiencing a very low inventory environment, setting up another boom when ideal conditions recover. I don’t know when that will be, but I expect it to happen. Be sure you have applied for your Maryland Homestead Tax Credit.

Curious about how many people benefit from this credit, I decided to take matters into my own hands. I conducted a little experiment and investigated the records for the homes in the Loch Haven neighborhood in Southern Frederick County, MD. Based on my findings, it seems that about two-thirds of homeowners in this area are taking advantage of the Homestead Tax Credit. While this isn’t an

official statistic, it may give an indication of how widely this program is utilized in the region. If you haven’t explored this credit yet, you might be missing out on an opportunity to save money on your property taxes!

Overview of the Maryland Homestead Tax Credit

The Maryland Homestead Tax Credit is designed to help homeowners manage the financial impact of increasing property assessments. By capping the amount that property assessments can rise each year, it can provide savings on property taxes, making homeownership more affordable for Maryland residents. This credit applies to owner-occupied residential properties and is intended to protect homeowners from dramatic spikes in their property tax bills.

Eligibility Criteria for the Tax Credit

• To qualify for the Maryland Homestead Tax Credit, homeowners must meet several criteria:
• The Property must be the homeowner's principal residence.
• The homeowner must have lived in the property for at least one year.
• The property must be used for residential purposes only.
• The homeowner must apply for the credit by submitting Homestead Tax Credit Eligibility Application (HST)

Applying for the Maryland Homestead Tax Credit involves a straightforward process:

• Homeowners must complete and submit the Homestead Tax Credit Eligibility Application (HST). 
• The application must be submitted by May 1 of the year prior to the year in which the credit is sought.
• Once approved, the credit will be applied to the homeowner's property tax bill automatically each year.

Benefits of the Homestead Tax Credit for Homeowners

The Homestead Tax Credit offers several benefits for Maryland homeowners, including:

• Protection against significant increases in property tax bills due to rising property assessments.
• Stabilization of annual property tax payments, making budgeting easier.
• Potential savings of hundreds or even thousands of dollars annually.

Common Misconceptions About the Tax Credit

Despite its clear benefits, there are several misconceptions about the Maryland Homestead Tax Credit:

Misconception	Reality
The credit lowers the property assessment value.	The credit does not lower the assessment value but caps the amount it can increase each year.
The credit applies only to new homeowners.	Long-term homeowners who meet the eligibility criteria can apply for and benefit from the credit.
The application process is complicated.	The application process is straightforward and can be completed online.

 

Impact on Property Taxes and Home Value

The Homestead Tax Credit can have a significant impact on both property taxes and home value:

·       By capping assessment increases, the credit helps homeowners manage their property tax bills more effectively.

·       While the credit does not directly affect home values, it can make properties a little more affordable and attractive to potential buyers. Homes are assessed every three years, so the lower assessment continues to apply.

Examples of savings:

o   A homeowner with a property assessed at $300,000, with a capped assessment increase of 2%, would save approximately $240 annually if the tax rate is 4%.

o   For a property assessed at $500,000, with a capped assessment increase of 5%, the homeowner could see a saving of around $1,000 annually, assuming a tax rate of 4%.

o   If the tax rate is 3% and a property is assessed at $400,000 with a capped increase of 4%, the savings would be approximately $480 annually.

Capped assessments vary by county or incorporated municipalities. Here is a sample:

• Maryland is capped at 10%
• Frederick County is capped at 5%, except in Walkersville capped at 10% and Mt. Airy 3%.
• Montgomery County is capped at 10%, except in Kensington is 5%
• You can find the full table here.

Frequently Asked Questions

Question	Response
Can I apply for the Homestead Tax Credit if I own multiple properties?	No, the credit applies only to your principal residence.
What happens if I move to a new home?	You will need to apply for the credit again for your new residence.
How will I know if my application is approved?	You will receive confirmation from the Maryland Department of Assessments and Taxation.

 

Resources for Further Information and Assistance

Homeowners can access more information and assistance regarding the Homestead Tax Credit through various resources:

Homestead Tax Credit Eligibility Application (HST)  

• Maryland Department of Assessments and Taxation (SDAT) website. Use this website to view your assessments and status of your application as well as online guides and FAQs. The status is in the lower left corner of the form.
• Tax bill Online Bill Inquiries and Payment Services. Use this website to review your tax bill and payments.
• The Maryland Homestead Tax Credit is a valuable tool for homeowners seeking to manage their property tax obligations. By understanding and applying for this credit, homeowners can enjoy financial benefits and the security of stable tax payments.

Thank you for reading this article. I would love to meet you and talk about real estate, and perhaps your future plans. If you know anyone else considering a move, I’d be grateful for your referral. I promise to take great care of them.

 

 

Capital Gains Taxes on the Sale of your Home

This blog is primarily about helping people buy and sell homes. Earlier this year, I wrote a four-part blog on ideas for preparing your home for sale by decluttering and dressing your home for a successful sale. While that may be a lot of work, those tasks can help you save a lot of time and expense when you’re ready to sell.

This post is somewhat similar. When you sell your home, Uncle Sam, as usual, wants his cut of the action in the form of Capital Gains Taxes. Although it is not too painful for most of us,  I want you to be aware of the tax and help you understand some of the rules, so you can be prepared. Hopefully you will pay as little in taxes as possible or perhaps make a little more on the sale.

This is a complicated subject, so let me make my disclaimer here. I am a REALTOR, not a financial advisor, CPA or tax expert. The following information is deemed to be accurate, but not guaranteed. This post is not intended to provide tax advice, but rather to make the reader aware of the basic rules that may apply to their specific situation. You are encouraged to reach out to appropriate experts.

Most of the time, when we sell our homes, we sell it for more than we bought it for; we sell it for a profit or capital gain. The tax code requires us to pay taxes on those gains. Capital gains are essentially the appreciation in the value of the home. For the last 25 years or so, the average home in our area has appreciated 5.5% per year. Most homes are a great investment! As an example, let’s say I bought my home for $125,000 (Cost Basis) and sold it for $800,000. Stated in a formula:

Sale Price – (Purchase Price + Improvements) = Capital Gain (Loss)

The appreciation or gain in value is $675,000. This is income, classified as Capital Gains, for the year in which the home is sold. We will discuss adjustments and tax rates further down in the post.

The tax code allows for some immediate relief or exclusions for some of those gains, if you qualify. You can exclude $250,000 as a single filer or $500,000 if you file a joint tax return.

To qualify for the exclusion, you must meet both the “ownership test” and the “use test” as follows:

Ownership Test: You must have owned and used your home as your main residence for at least two years out of the five years prior to its sale and

Use Test: During those five years, the home must have been your primary residence for the required period.

For complete eligibility requirements, limitations, and exceptions to the two-year rule, please refer to IRS “Publication 523, Selling Your Home”, There are additional rules for military, some government personnel and installment sales.

Upon the closing of the sale, the Title company will normally file Form-1099S with the IRS. If they do, you will need to report the sale even if the sale is fully excludable. You report your home sale on your income taxes for the year in which you sold it, using the Form 1040. The home sale is reported on “Schedule D (Form 1040)” and “Form 8949” for your return. However, Capital Gains are taxed at a special rate. Based on your tax filing status, the rate you pay depends on the net capital gain as shown in the table below.

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
0%	$0 – $47,025	$0 – $94,050	$0 – $47,025	$0 – $63,000
15%	$47,025 – $518,900	$94,050 – $583,750	$47,025 – $291,850	$63,000 – $551,350
20%	$518,900+	$583,750+	$291,850+	$551,350+

Some special circumstances:

Surviving Spouse

1. Exclusion: If you’re a surviving spouse and you sell your home within two years of your spouse’s death, you may qualify for the full $500,000 exclusion from capital gains tax. The same exclusion rules apply.
• If you’re a surviving spouse Beyond Two Years, you can exclude up to $250,000 of capital gains from your gross income.
• However, any gain beyond that amount isn’t automatically taxable. It depends on other factors.
2. Step-Up in Basis: When a property owner dies, the cost basis of the property receives a “step-up” under federal law. Depending on the legal ownership of the property, this may mean at the time of your spouse’s death, the new cost basis is the fair market value of the property, and not the original purchase price.

Capital Improvements

The cost of home improvements that increase the value of the home, not just maintain value, may be added to the original purchase price to decrease capital gains. In general, you can’t include any costs of repairs or maintenance that are necessary to keep your home in good condition but don’t add additional value or prolong its life. Examples include painting (interior or exterior), fixing leaks, filling holes or cracks, or replacing broken hardware. However, you may include these costs if they are part of a capital improvement project.

Costs of improvements that add to the value of your home, prolong its useful life, or adapt it to new uses, may be added to the basis of your property. The following chart lists some examples of improvements.

 

Realistic Examples from Southern Frederick County:

Filer Type:	Married Filing Jointly	Married Filing Jointly	Single (Widower)	Single (Divorced)
Purchase Price:	$55,000	$254,960	$38,530	$177,000
Step-up	0	0	$333.495	0
Sale Price:	$560,000	$800,100	$600,000	$560,000
Capital Gains:	$505,000	$545,140	$266,505	$383,000
Exclusion:	500,000	$500,000	250,000	$250,000
Improvements:	$35000	$75,000	0	$65,000
Net Capital Gain:	$-30,000	$-29,860	16,505	$68,000
Capital Gains Rate:	N/A	N/A	0%	15%

*These examples are actual purchase prices; the rest of the numbers may be actual or reasonable estimates.

Of course, you will need receipts and documentation to substantiate the costs of these improvements. If you think you may need them, try reaching out to the company that performed the work to see if they can provide you with the information. Like decluttering and showcasing your home, gathering and organizing these receipts can be done long before you decide to sell, making the home sale and income tax season far less stressful.

I want to stress again: this is a highly complex tax topic, and we have only just covered the most common aspects of the law. I highly recommend that you consult a competent tax professional or refer to official IRS publications for specific guidance.  

If it would be beneficial to you to know the current market value of your home, offer a free service called a “Real Estate Review.” I can review with you the basis of the estimate and even provide a signed letter stating my opinion of the value.

I hope this has been beneficial to you. Please let me know how I can help you today.