Homestead Tax Credit in Maryland

How this credit helps homeowners manage property tax increases

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The Maryland homestead credit is a property tax credit designed to help homeowners defray some of their property taxes by capping the property tax assessment increase allowed. Every county and municipality must limit its increases in its taxable assessments to 10 percent or less. Many areas are well under that 10 percent limit. 

How the Maryland Homestead Credit Is Calculated

The homestead credit does not limit the assessed market value of the property but is actually a credit calculated on any assessment increase exceeding 10 percent (or the lower cap enacted by the local governments) in one year.

So, homeowners pay property tax on the value of their property as declared in their previous tax assessment plus any increase in value up to 10 percent but nothing more.

For example, if your property was previously assessed at $100,000, but your new assessment is $120,000 (a 20 percent increase), you would pay taxes only on $110,000, which is a 10 percent increase. Taxes are calculated on the $120,000 amount then a credit for the taxes due on the $10,000 is subtracted. 

The credit is calculated based on the 10-percent cap for Maryland state property tax and 10 percent or less (as determined by local governments) for local taxation.

Who Is Eligible for the Maryland Homestead Credit

The Homestead credit applies only to owner-occupied properties. The property must be the owner's principal residence, and an owner can only receive a credit on one property a year. He or she must have lived in it for at least six months, including July 1 of the year for which the credit is applicable.

One exception is if the owner was temporarily unable to live there because of illness or need of special care. A married couple may only have one principal residence.

If a homestead credit application is not consistent with income tax and motor vehicle records, homeowners will be required to submit additional verification later.

How to Apply for the Maryland Homestead Credit

If your property is eligible for the homestead credit, it will automatically be calculated on your tax assessment notice. So it is important that the information as to whether the property is your principal residence is accurate. This is found at the top of your assessment notice.

In 2007, the Maryland General Assembly enacted legislation that required homeowners to fill out a one-time application for the homestead credit. If the property is designated as you principal residence, an application was included with your tax assessment notice. Even homeowners who have previously received the credit must apply in order to continue receiving the credit. 

There are some conditions that might make a property ineligible for the Maryland homestead credit. They include

  • A transfer to new ownership during that year.
  • A change in the zoning classification, requested by the homeowner, resulting in an increase in value to the property.
  • A substantial change in the use of the property.
  • The previous assessment was clearly erroneous.

For the latest information on eligibility for and updates to the Maryland homestead credit, check with the state department of taxation and assessments.