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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