Changes to the Homestead Exemption Program

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Changes to the Homestead Exemption Program
Mike Sobul Ohio Department of Taxation
Presentation to the B.A.D Seminar August 8, 2007
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Property Tax Relief in H.B. 119

• Unprecedented expansion of homestead exemption
  property tax relief targeted to elderly and
  disabled
• No loss to schools or local governments paid
  with state government reimbursements. Not paid
  from existing GRF tax revenues
• Expanded homestead reduces school district taxes
  on elderly homeowners and may lead them to be
  less resistant to new levies

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Need for Improved Homestead

• Property tax is a particularly heavy burden for
  senior citizens on fixed incomes
• Homestead relief has seriously eroded over past
  quarter-century

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Property Tax Relief

• Decline of the Homestead Tax Relief Program
• of Senior Homeowners Qualifying

2004
1980
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Property Tax Relief

• Exempts from tax first 25,000 of homes market
  value for all senior citizens disabled
• (both real property and manufactured homes)
• 25,000 market value exemption is 8,750 assessed
  value exemption
• Average tax cut is 406, or 24.1

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Property Tax Relief

• Homeowner qualifies if he or she meets one of
  these criteria
• Age 65 or over
• Spouse (at least age 59) of deceased homeowner
  who was receiving homestead at the time of death
• Totally and permanently disabled

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Calculation of Credit

• Market value x .35 x effective tax rate gross
  tax
• Gross tax x 0.875 net tax before homestead
  (taking into account both 10 and 2 ½ rollbacks)
  
• 25,000 x.35 x effective tax rate .875
  homestead credit
• Net tax before homestead credit tax

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Grandfather Provision

• Because current law uses gross tax rates to
  calculate homestead and proposed law uses
  effective tax rate, some property owners will
  receive greater credit under old law
• If so, they can continue to receive the credit
  established for TY 2006
• If future credits exceed TY 2006 credit, they
  will receive the larger credit

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Property Tax Relief

• Advantages of the new Homestead credit
• Greatly simplified
• Greatly expanded
• Progressive tax relief

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Homestead Relief Previous Law Complex,
Illogical, Outdated

• - Complicated income definitions
• - Uses gross millage although no
• homeowner actually pays gross millage
• (creates need for grandfather clause)
• - Tax relief has fallen far behind inflation

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Property Tax Relief

• Number of Senior Citizen Homeowners Receiving
  Property Tax Relief

New Law
Old Law
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New Homestead Percent Tax Reduction for Various
Home Values
Tax Reduction
Home Value
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Administering the Change

• There is an extended filing period from 7/1/07 to
  10/1/07
• Applies only to new applications for TY 2007
• i.e., not an extension of time to file late
  applications for TY 2006
• Manufactured home owners will apply for TY 2008
• Owners who are already on homestead do not need
  to file a new application during the extended
  filing period

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Administering the Change

• Owners who filed their first homestead
  application for TY 2007 prior to June 4, 2007 do
  not need to file a new application during the
  extended period
• Auditors existing records from prior
  applications already contain the information
  necessary to qualify these applicants for the
  expanded homestead exemption

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Proposal for Surviving Spouses

• Surviving spouses that meet all of the following
  requirements do not need to file an application
  during the extended period
• The home received a homestead exemption for TY
  2006
• The spouse died in 2006
• The surviving spouse was at least 59 on the date
  of the decedents death
• All other surviving spouses should file during
  the extended period to ensure they receive
  homestead for 2007

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Second Chance

• Any eligible taxpayers who miss the extended
  filing period will still be able to file a late
  application for TY 2007 between 1/7/08 and
  6/2/08, as provided in permanent law
• In contrast to the old homestead program, there
  is no need for annual applications under the new
  program

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Application Forms

• ODT has drafted a temporary application form for
  the extended filing period
• The temporary form does not mention late
  application procedures
• Due dates and questions are specific to the
  extended filing period
• Revised permanent forms will be reissued in Fall
  2007 for the 2008 filing period

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Application Forms

• The temporary forms are available on the ODT
  website
• ODT has also prepared an FAQ bulletin and a
  informational flier that are also available on
  the ODT website
• www.tax.ohio.gov

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Summing Up

• Property tax particularly heavy burden for senior
  citizens
• Homestead relief has seriously eroded over past
  quarter-century
• Proposed Homestead is greatly simplified, greatly
  expanded, and provides progressive tax relief
• May lead to less resistance to new property tax
  levies