04/09/2012 Council Packet - Laserfiche WebLink

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1 Anoka County 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 City of Lino Lakes Understanding Recent Changes to Homestead Benefits The following explanation of the recent changes to homestead benefits is taken from the Minnesota Department of Revenue website: http://taxes.state.mn.us/property/Documents/hmve-taxpayers.pdf MINNESOTA• REVENUE Understanding Recent Changes in Homestead Benefits For Property Tax Purposes What Changed? The 2011 Legislature repealed the Homestead Market Value Credit, (the homestead credit), and replaced it with a new Homestead Market Value Exclusion. The last year of the credit is for property taxes paid in 2011 and the exclusion begins for property taxes payable in 2012. What is a credit? A credit is a reduction in the amount of taxes due. What is an exclusion? An exclusion is a reduction in the amount of value subject to tax. The old law with the credit was as simple as: X — Y = Z If your initial tax was X, and your credit was Y, then the tax you had to pay was Z. Under the new law, an exclusion changes the initial tax amount (X), and with the credit gone. the new initial tax becomes the final tax (X = 2). HOW DO HOMESTEAD BENEFITS CHANGE? Under the old law, the credit itself equaled the homestead benefit, and its calculation depended only on the value of the homestead. Because the credit was subtracted from the initial tax amount, the credit affected each taxpayer independently. Under the new law, the exclusion is still calculated using the value of the homestead, but the tax benefit depends on a variety of factors other than homestead value. Because the exclusion is a reduction in the value subject to tax, it also affects tax rates and the taxes of all properties. WHY IS THIS CHANGE COMMONLY RESULTING IN TAX INCREASES? There are four reasons why the change commonly results in increases: 1) State money is no longer reducing total taxes. For 2012, the state was projected to pay approximately $260 million of local taxes through the credit program. With the change, there will be no state paid credit and the entire local property tax levy will be paid by taxpayers. 2) The reduction In taxable value increases tax rates. With the total taxable value being reduced by the exclusion, raising the same total levy as the prior year requires a higher rate. 3) The reduction in taxable value shifts the relative burdens of who pays. With homestead values reduced, other property types (and homes with higher values) pay a larger share of the tax. 4) The exclusion provides less benefit In low tax rate areas than the credit. The computation of the exclusion and credit amounts are roughly comparable where the tax rate is close to the state average, but in lower tax rate areas the excluded value provides less benefit. High rate areas may sec greater benefit.