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Changes to the Homestead Changes to the Homestead Exemption Program Exemption Program
Presentation to the B.A.D Seminar
August 8, 2007
Mike Sobul
Ohio Department of Taxation
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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
70%
29%
0%
20%
40%
60%
80%
20041980
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Property Tax Relief
Exempts from tax first $25,000 of home’s 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
775,000
220,000
0
200,000
400,000
600,000
800,000
1,000,000
Old Law New Law
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New Homestead: Percent Tax Reduction for Various Home Values
50%
10%
1%
25%
0%
10%
20%
30%
40%
50%
60%
$50,000 $100,000 $250,000 $2,500,000
Tax
Red
uctio
n
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
decedent’s 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