Relating to Real Estate
Homestead Tax Credit Applies When Home Is Razed and Rebuilt, but Assessment Increases
In State Department of Assessments and Taxation v. Andrecs, 444 Md. 585 (2015), the Court of Appeals held that a homeowner who razes his home and rebuilds it is entitled to maintain the homestead tax credit he had before knocking down his house, but the value of improvements he made to the property must be included in the new tax assessment of the property.
This case addresses the tension between the homestead tax credit and the general rule that all real property in Maryland is to be uniformly assessed. When the homestead tax credit was originally enacted in 1977, if a homeowner substantially renovated his property he lost the benefit of the homestead tax credit. The legislature amended the homestead tax credit statute in 1991 and 2006 to provide that in such circumstances, the homeowner retains the existing tax credit, but the full value of the improvements are included for tax assessment purposes.
The underlying facts in Andrecs are straightforward. Kevin Andrecs owned a home in Anne Arundel County and received a homestead tax credit with respect to it. In 2008 and 2009, Andrecs razed his house and built a new home there, increasing the property value by about $500,000.
The tax assessor permitted Andrecs to maintain his homestead tax credit, but included the new full value of the property in the assessment. The Tax Court affirmed this position over the objections of Andrecs, who claimed that the value of the renovations should be phased in over a number of years. Andrecs argued that the annual increases in the assessed value of his home for state tax purposes should be limited to 110% of the prior year’s value and 102% of the prior year’s value for Anne Arundel County tax purposes because of the homestead tax credit limitations.
Andrecs appealed the decision of the Tax Court to the Circuit Court for Anne Arundel County, which reversed. The circuit court held that the value of the renovations should not have been included in the calculation of the initial tax assessment. On appeal, the Court of Special Appeals affirmed in an unreported decision. The Court of Appeals granted the SDAT’s petition for certiorari.
The Court of Appeals considered its task to review the action of the Tax Court, which is an independent administrative entity, and not the decisions of the reviewing courts. Upon such review, the Court of Appeals agreed with the analysis of the Tax Court and concluded that the calculation of the tax credit that is associated with the initial taxable assessment of the property with the new home on it must include the new valuation of the improvements.
For questions, please contact Ed Levin (410) 576-1900.