“Does anyone know what bill or rider changed the homestead deduction so substantially?”

Photo by PoPville flickr user Josh Bassett

“Dear Popville,

It’s March 3, so I decided to go look up my property tax assessments online to see if anything crazy happened (as sometimes happens in “developing” neighborhoods). When I looked up my primary home, my brain had a slight meltdown. My total assessment was *slightly* lower, but my taxable assessment was substantially higher. I was kind of busy, so I set it aside for a minute to let my brain regroup, and then looked again. It took me a minute to figure it out, but the homestead deduction had dropped from $90-something-k to $70-something-k. I don’t remember a big uproar about this change, so what gives? This deduction reduction (what’s your function?) will increase the property taxes on my home almost 10% next year (officially, 9.996%, so the 10% “cap” doesn’t apply and I don’t have room to complain on those grounds). Does anyone know what bill or rider changed the homestead deduction so substantially? Does it apply to all homes, or just a subset (my home is a condo)?”

45 Comment

  • It’s been 70k for at least the past 4 years, I believe. Haven’t heard that it was actually higher before that.

  • Most people probably don’t notice esp. those who have it paid though escrow. Also a 10% jump in a developing area…is that something most people would consider substantial? Something like 20/month give or take.

  • Its been ~$72k for at least the last couple years.

  • I did the homestead paperwork about six months ago on my detached house and it was $75k at that time, clearly printed on the form. I don’t know when it changed, but I believe the date on the form was 2014. I also believe condos don’t qualify if the building has more than some number of units (maybe 5?).
    DC property tax is really low compared to neighboring jurisdictions, and assessments here don’t seem to change much between property sales, based on my experiences of ownership here and in Maryland. So I can’t really muster much outrage about this.

    • condos definitely qualify regardless of the number of units in the building. i have been getting the deduction for years as it is my primary residence and i live in a larger building.

    • +1 on the property taxes being lower. My sister lives in Virginia and her house is probably worth about $200k less than mine, but our property taxes are about the same.

    • Not sure where you live, but my assessment has gone through the roof in the time I’ve owned the house. I bought in 2009, and I’ve had a 10-15% increase every year, including one that arrived in the mail today.

    • Guess I was wrong on most counts here. Must have had things conflated with another bureaucratic process. People below seem much more on the ball.

  • My guess? You saw it as 90k last year because the 10% rule applied.

  • HaileUnlikely

    I do not think the Homestead Deduction has been reduced. I believe it was something in the high $60K range (like $68K or thereabouts) last year, and has been increased to $71,700 for tax year 2017. The way they compute the taxable assessment is not altogether obvious. The assessed value is independent of the Homestead Deduction and independent of the 10% cap on the amount by which your taxable assessment can increase from one year to the next. Had your total value never increased by more than 10% per year, your taxable assessment would be your total value minus the amount of the Homestead Deduction. However, because of the cap on the annual rate of increase of the taxable assessment, in many areas the total value exceeds the taxable assessment by much more than the amount of the Homestead Deduction, and varies from year to year depending on how much the total value increases. I’m pretty sure the Homestead Deduction was never anything approaching $90K. Your taxable assessment is likely now catching up to [Total Value – Homestead Deduction] because total value was increasing more rapidly in previous years and has since slowed down its rate of increase (still increasing, but by a smaller percentage year-over-year than in previous years), allowing the taxable assessment, increasing at the capped rate of 10% per year, to catch up to its usual amount of Total Value – Homestead Deduction.

  • Guys, I’m looking at my assessment right now. My total assessment decreased $1430. My taxable assessment increased $10,949. I purchased in 2014, at a higher price than my 2016 or 2017 assessments (set the year prior, obviously), so it’s not that the 10% cap is “catching up.” My total assessment is *lower than it’s ever been.*
    I could have sworn that the homestead was ~$90K in the past. Regardless of the cause, this is an almost exactly 10% increase in my taxes for no discernible reason. Maybe I just need to contact the property tax office.

    • HaileUnlikely

      I’m not sure whether the 10% thing just follows the property blindly or whether it is reset when the property is sold. Unless the house is new construction, 2014 was not the first year that was taxed. If the 10% cap does not reset when the property is sold, then it still could be that the 10% cap is catching up to the value. Unless the house is new construction, I guarantee that the assessment for the property is not the lowest that it has ever been, even if it is the lowest that it has been since you bought it.

      • See MeMe below. The assessment is re-set at sale to, generally, the sale price (except for things like foreclosures and short sales, which this was not). *My* assessed value is lower than it’s ever been. Regardless, there is some funky math going on, and the taxable assessment *also* isn’t the total assessment – homestead. Something is very wrong, but I guess maybe not a change in the homestead deduction. I’ll have to call to straighten this out.

        • true. it also explains much of the variance is valuation for Zillow’s algorithm which weights heavy on tax assessment data. The value of more recent sales is always higher than it is for long time owner occupied houses.

    • You’re 100% incorrect that the Homestead was ever ~$90k. It’s been sitting around ~70k, increasingly slightly every year for at least 6 years now.

    • OMG…these people.
      I settled my property on the last day to file for the homestead deduction for the full year. They gave me half the deduction in that year. Apparently they should have given me more (for some undefined period of time, I paid taxes without consideration of the homestead deduction). So, last year, they gave that back to me in the form of an adjustment to my taxable assessment. Apparently this was caught in the homestead audit, which they made me fill out not even 6 months after buying this property and applying for the homestead deduction. I didn’t really notice because it was the first full year I had paid taxes, and I didn’t know what the old owner’s assessment was. All I knew was that my bill was less than the carried-out amount for the previous year…HOORAY! BUT HERE’S THE KICKER…the amount of the adjustment was more than 10% of my property tax bill, so my taxable assessment went up 10% this year, and will go up some other amount next year up to 10% (they “prefer not to speculate, since your assessment could also increase”).
      This is ridiculous. Any adjustments should have been detailed on my bill, not just thrown in as an adjustment to assessed value with absolutely no way to find this out except some back-end notes at the property tax office. Why not just do a straightforward refund/credit of the amount they owed me?
      Sometimes, this city makes me crazy.

  • I’ve owned my home for a year and bought it right after it was flipped. I received a letter recently noting that the tax folks had reassessed the value based on improvements to the home and it’s now $200K higher than it was last year. I applied for the homestead deduction when I bought the house. Can someone actually explain to me how this works? I know I should understand it but I can’t figure it out. The $200K increase is not going to have the full impact on taxes it would because of the homestead deduction right? DC can only increase my property tax 10% from what it was in 2015, right? Although this should indicate that they plan to do that every year until it gets back to the market value? So I should be budgeting for having 10% more go into escrow for taxes each year?

    • When a house sells, the property tax valuation can increase beyond the 10% per year cap to the new purchase price.

      • Does that include a re-fi too? (if you know)

        • seems like it should but it never has for me. I’ve refi’d multiple times and never faced a tax hit.

          • HaileUnlikely

            I honestly do not know and am only speculating here, but I think the idea of the 10% cap is that the actual person who owns the house is protected from astronomical year-over-year tax increases, thus resetting when the property is sold to a different person but not when the same owner just refinances.

        • Don’t think so-just new sales

      • That isn’t right. My tax assessment for 2015 after I bought the house stayed based on the original valuation and the tax assessment went up this year based on the renovation improvements, not for what I paid for the house. I applied for and was granted the homestead deduction a year ago so already had it based on the original assessment.

    • HaileUnlikely

      The answer to your entire question is complicated, but the answer to your final question is that if you live in an area where the values are increasing rapidly, or if your taxable assessment is presently more than $72K less than your total assessed value, then yes, you should be budgeting for your property taxes to increase 10% each year.

      • Maybe doing by example will help. When I bought the house, let’s say I paid $600K for it, but the tax assessment was based at $400K. I applied for the homestead exemption/deduction when I bought it. A year later, I get a tax assessment adjustment form (whatever that is called) that says the new tax assessment was going from $400K to $600K. My house is now currently worth $650K due to rapidly increasing home values. I paid property taxes my first year based on the $400K assessment. I assumed, perhaps wrongly, that with the homestead deduction, the taxes could only increase 10% maximum year over year no matter if the tax assessment jumped $200K in a single year due to improvements made to the home. Basically, I thought, okay they can assess it at whatever they want but so long as I have the homestead exemption the most my taxes will increase year over year is 10%. I think I assumed this because it keeps residents who lives in rapidly changing neighborhoods from seeing their taxes shoot way up simply because their home value has gone way up year over year.

        • Your understanding is correct. Your assessment can increase an unlimited amount, but the taxable assessment can only increase 10% per year. So when your assessed value went from $400K to $600K, your taxable assessment should have gone from about $330K ($400 minus the homestead deduction) to $366K (10% increase from the previous year). And then when the assessed value in year three went to $650K, you taxable assessment should have gone to $402K (10% increase from last year).

          • HaileUnlikely

            This, with the major exception that I’m pretty sure the *taxable* assessment can jump by more than 100% when the house changes owners. I suspect that Truxtoner’s first year’s taxes were artificially low (if you want to think of it that way) because the assessment is adjusted annually, not at the actual time of the sale, and that the last adjustment was before the sale (i.e., he basically got to pay his first year’s taxes at the previous owner’s rate).

          • Right, but if he got and paid a bill based on an assessment of $400K, then that’s the baseline for the 10% cap. There’s no provision to reset the baseline based on remodeling or selling, it’s just your previous bill. So the big jump for the city will be when Truxtoner sells the house, because the new owner’s taxable assessment will be the full assessed value minus the homestead deduction, since she won’t have a previous bill to apply the cap to.

          • HaileUnlikely

            I follow what you are saying, however, I’m not sure it’s correct that the cap is relative to the first tax bill received and paid. It might be–I do not know otherwise for a fact–but I don’t have it on any authority other than your assertion, and it conceptually doesn’t make sense to me. If that were so, then everybody would try to settle the week before the property tax bills were mailed out, because they’re mailed out to everybody at the same time, and if you what you’re saying is correct that the 10% cap is relative to the first bill that you receive and pay, then you could effectively lock in the previous owner’s assessed value as your baseline. I don’t think the ability to jump by more than 10% is necessarily keyed to your very first tax bill, I think it is keyed to the first assessment following the purchase.

        • HaileUnlikely

          In your hypothetical example, I suspect what happened was that your first-year tax was based on an assessment done prior to your buying the house and that the assessment for that tax year was already set, and that the increase from that assessment to the next one was not subject to the cap because it was the first assessment subsequent to the sale. If you go into the DC OTR tax assessment database and plug in addresses for other neighboring houses around you that have had the same owner for a long time, you will probably see their taxable assessment growing at a steady 10% per year for the past several years, and if you plug in addresses of homes that sold in the past few years, you’ll probably see all of their assessments growing at 10% per year prior to the sale, then jumping in the next assessment after the sale, and then resuming growth of 10% per year.

  • I signed up for it in 2013 and back then it was around $67k. Looking at the amendments made to DC Code, I’m not sure it was ever in the 90s. It looks like it’s just been increasing over the years.

  • If you look at your bill in the Additional Information box it shows the formula for your homeowner’s credit and also the capped assessment. The capped assessment goes out the window if you buy or renovate. Also, if you contest the assessment, be prepared to go to level 2 with comparables from the neighborhood or they will not budge.

  • Don’t try to worry too much about it. In the long term your property will most likely increase in such value that whatever tax increase you see will be minor. I know people that have retired from the equity in their property. Owning property in D.C. is a win-win (except the poor that can’t get approved).

    Personally I plan on cashing out if Trump moves into the WhiteHouse.

  • I’m not going to jump into your specific tax increase, but just to answer your actual question, 1) no the homestead deduction was not $90k a few years ago, and 2) the homestead deduction applies to all homes with fewer than 5 units where the principal resident is living. The deduction started out at 38k (back in 1978) and has slowly increased since then, but it’s never been above the level that it is now.

    • So the idea with the “fewer than 5 units” is that you can be the landlord of (say) a 4-unit building, but as long as you live in one of the units you can get the homestead deduction for the whole building?

      • 4 units is the cut-off for a “residential mortgage” under most bank’s underwriting guidance (which comes from Fannie/Freddie, IIRC). This is assuming the owner occupies a unit.
        5+ units is considered to be “multi family mortgage” and is a whole different beast from the perspective of underwriters and regulators. You’re now entering into the investment/commercial real estate space and the risks are higher for underwriters. The government guarantees no longer apply.

      • PS – I think you would be correct that the owner would get the deduction for the entire building, so long as she lives in one of the 4 units. The owner would be paying for all the units under one mortgage.

      • That’s really a non-issue, Textdoc. If you own a $500,000 house you get a $70,000 homestead deduction. If you own a $2 million 4-unit condo building, you get a $70,000 homestead deduction. How else would you have it work? The only way it would be a bit perverse is if the individual unit was worth less than $70,000 which I don’t think is possible.

  • Just filled out my homestead act. However, I filled it out at my closing. My title company has a copy from 2012 but DC tax office said they never received it. Title company said they sent it. Any ideas advice or do I just gotta grin and bear it?

  • We got our tax bill yesterday and it was significantly higher than last year. I worked out that the assessment value and is 16% higher than last year. We get the Homestead Deduction which I thought automatically qualified us for the 10% Assessment Cap but I don’t see it saying that anywhere on our bill. I’ve tried calling OTR multiple times throughout today but I keep getting the automated message about their lines being busy and haven’t gotten through yet.

    • If you’re looking at the bill, it should tell you how they calculated the taxable assessment in the “Additional Information section. For example, mine says something like “Your property is receiving an Assessment Credit (10% cap) and the Homestead $71,700 Assessment deduction”.

      • Yeah I noticed other people said that but our bill doesn’t mention the assessment cap credit. It just says “The homestead deduction reduced your tax by $609.45”. So hopefully that means the assessment cap wasn’t applied and we don’t owe this much in taxes!

        • You say that your assessment went up by 16%, but you don’t mention the percentage increase of your tax bill, which is what I believe the 10% cap is for.

          From the DC Prop Tax website: “The Assessment Cap currently provides that a property may not be taxed on more than a 10 percent increase in the property’s assessed value each year.”

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