Why they matter: Property tax relief programs
Property tax relief programs reduce the burden on qualified taxpayers who live in areas with rapidly rising home values.
What are property tax relief programs?
Property taxes are a critical funding source for public schools and services within their communities, but they can also create challenges for homeowners living in areas where property values suddenly rise. When property taxes become too costly, homeowners, particularly those with modest incomes or on a fixed income, may face foreclosure or involuntary displacement because of their inability to pay – even if they are no longer carrying a mortgage.
Rising property taxes also impact renters because they pay a portion of their landlord’s taxes as part of their monthly rent.
How do property tax relief programs work?
There are two main types of property tax relief programs – homestead exemptions and circuit breakers – and they function just as their names would suggest.
What’s the difference?
- Homestead exemptions reduce the amount of property value subject to taxation, either by a fixed dollar amount or by a percentage of home value.
- Apply only to homeowners, meaning renters who pay a portion of their landlords’ property taxes each month are excluded. Homeowners of all income levels can take advantage of the program.
- Homestead exemptions are most impactful in places with high property tax rates.
- Like electric circuit breakers, property tax circuit breakers shut off property taxes once they exceed a certain portion of a family’s income in order to keep the cost from overloading a family’s budget.
- Require eligible parties to apply and be approved to receive benefits, making community education and outreach essential components to ensure action from taxpayers with the greatest burdens.
- Because circuit breakers are targeted to selected income groups, they are much less expensive than broad property tax breaks like homestead exemptions or tax caps, and the benefits go only to the taxpayers for whom property taxes are the most burdensome.
Policy in action
Some local and state jurisdictions have adopted property tax relief programs, such as homestead exemptions and circuit breakers, to protect low-income homeowners and renters from large spikes in their property tax bills. For instance, Maryland has implemented a circuit breaker program for its residents that provides qualified homeowners and renters a tax credit if their property tax bill exceeds a fixed percentage of their gross income.
Things to keep in mind with property tax relief programs
- Property tax relief programs are typically tailored to benefit senior citizens, who often have limited or fixed incomes. Many households without elderly residents are susceptible to the same property tax burdens, which is why many states have begun to extend existing programs to these households.
- Inflation can cause fixed-dollar homestead exemptions and circuit breaker tax credits to become less valuable over time. States should consider indexing exemptions or income limits for inflation in order to ensure that property tax relief programs continue to provide the long-term relief for low-income households that jurisdictions originally envisioned.
- Income-based property tax relief programs have a cost to state and local incomes in the form of forgone tax revenues and added administrative costs.
- Low-income households, particularly Black and Hispanic households, have long carried a disproportionate property tax burden. Rising property taxes can lead to displacement and widen the racial wealth gap. Property tax relief programs can ease this burden on residents of color and address the racial inequities in the housing system.