If coastlines and waterways call to you, then you may have found yourself captivated by Maryland for your investment property purchase. Who knows what kinds of opportunities lie in the future and what this move can do for your portfolio?
Alternatively, maybe you're just in the consideration process and want an idea of what to expect as a homeowner in Maryland before you commit to a purchase. We commend you for that since it's clear you take a meticulous approach to your financial decisions.
You should already know that property tax bills are something you'll have to deal with. Your questions are likely along the lines of how it all works.
How are the figures calculated?
What are the payment options you have to ensure that your property tax account remains in the green?
Are there any options that you could consider to perhaps reduce the burden?
What if you don't agree with the value assessment?
Already, you can see that the property tax equation isn't the most straightforward thing. Don't worry, though, as we're here to make it as clear for you as humanly possible.
By the time you're done reading, you'll have a much clearer picture of what you should expect going forward. Whether you're a landlord, property manager, or investor, you'll be all set to navigate these complex waters.
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How Many Times a Year Do You Pay Property Tax in Maryland?
First, you should know that in Maryland, there are two ways in which payments can be handled. There are the annual tax bill and the semi-annual tax bill options, both of which should be self-explanatory.
If you're an annual payee, then your tax bill will become due on September 30th. This date is also applicable to the first semi-annual payment. December 31 is when the second semi-annual payments are due.
Note that any revised or supplemental tax bills are due 30 days from whenever they were issued. If you want to avoid any interest or penalty charges, you'll want to ensure that your payments are received and credited on time. To this end, postmarking is not accepted since it's an indication of when the payment was mailed, as opposed to when it is acknowledged as made.
If you're using regular mail to send your payment, you'll want to allow for a 5-7 business day window. If the payment should come in via the processing facility of the bank, processing will occur on the day of receipt.
Additionally, should a payment be addressed to an incorrect location or not be sent in the proper form, there may be a delay lasting up to five days.
Consequences of Late Payments
The applicable due dates for your real property tax bill were covered above. After September 30 and December 31 for the respective bills, unpaid bills are deemed late the next day.
Any delinquent taxes will attract a penalty in the form of interest of 1.667% monthly until the balance is fully paid.
This translates to a 20% annual late charge based on Resolution following County Council action. The percentage is comprised of a 12% penalty and 8% interest. Both of these will be calculated against the bill's net amount, meaning after any applicable exemptions are applied.
Taxes that continue to be delinquent will cause the property to be sold. This will happen via a public property tax lien sale during June of the subsequent calendar year on the second Monday. The notice for this will be served in April.
How to Pay a Property Tax Bill in Maryland
The way Maryland property owners pay their taxes will be based on their county.
Take Montgomery County, for example. Payees can visit the respective sites for real property tax and personal property tax bills to make their payments. If either online method is chosen, then the payment can be made via electronic check or by debit/card.
One of the advantages of going the electronic check route is that there is no convenience fee associated with the transaction. If you should use a credit or debit card, there will be a convenience fee, which is charged by the card processor.
Apart from online, there is the option to pay by phone. Again, the methods that may be used are electronic check or credit card. The fee structure remains the same as before, only being applicable if a card is used.
Paying by mail is the next option, which would require a check to be made out to Montgomery County, Maryland.
Finally, there is also a walk-up drop box option, which is a newer offering. No money orders are accepted. Note that the convenience rates are not set in stone and can be changed at any time with no notice.
How Much Is Property Tax in Maryland?
Property tax is a local government revenue source and it's depended upon by municipalities and counties. Combined with income tax revenue, the budgets will be created.
So let's talk about real property taxes for a moment. The amount that you're gonna see on your bill will be determined by two things. The first is the assessment, with the second being the property tax rates for each jurisdiction.
Note that the assessment will be based on the property's fair market value and will be issued by the Maryland Department of Assessments and Taxation. This is a state government agency.
Properties will be reassessed once every three years and property owners will be notified of any change in the assessment in late December. Since counties have three assessment regions, there will be about 33% of the active property accounts reassessed annually.
The values will be certified by the Department of Assessments and Taxation, after which conversion will take place into property tax bills based on the jurisdiction's tax rates.
As for the tax rate side of things, there can be some very wide variances. Much of that has to do with the fact that the state doesn't impose any limits on property tax payments. Therefore, the counties, and cities can choose to set the rates at whatever level they may deem necessary to cover their pool of expenses.
There's also the effective tax rate to remember, which combines the rate of the municipality, county, and state. The rates will be expressed per $100 of assessment.
What does the assessment process look like? This will be guided by the Declaration of Rights of Maryland's Constitution, Article 15. State law requires taxable property to be assessed based on fair market value, which the courts interpret to mean assessments must use the property's fair market value.
Of course, this means that property assessments will require an appraisal of what this value is. The assessors are given the required training to be able to use standard appraisal approaches, which is meant to ensure that they come up with a fair estimate.
To this end, they can take either the cost approach, sales approach, or income approach to determining the value. The calculation methods are obviously different, but it's generally accepted that either of the three is capable of returning the fair market value of the property.
If there is an increase in the property's full cash value, state law mandates that the new value is eased in via phases over the next three years. This is done in equal proportions and prevents the jump from feeling like too much of a spike all at once.
How Is Property Tax Calculated in Maryland?
As indicated before, assessors are trained and will use one of a few approaches. Typically, the process will see either the sales or cost approach being used. The income approach will only apply if your property produces an income specifically from being leased or rented. If that does apply to you, then you'll want to keep it in mind. For now, we'll talk about the other two.
The Sales Approach
How does the sales approach work? Well, the idea is that the prices of properties that share similar attributes to the one being assessed (the subject property) can be used to determine the fair market value. Imagine a situation in which properties like yours have been selling for $200,000. It's not farfetched to assume that other properties like them would be sold in that range.
It's not hard to see where situations could arise that would yield a significant margin of error here. Therefore, for the sales approach to work, targeted attention would be paid to the extent of comparability and the amount of data that's available.
The Cost Approach
With the cost approach, the premise is that you can determine the fair market value of a property by looking at how much it would cost to construct a similar development. Elements such as the price of the land, condition, and the age of the building would be deducted from this.
Of course, working with this approach means that there's an assumption that a hypothetical buyer would not be paying more than the designated amount.
How Assessors Operate
You will usually find that Maryland assessors tend to blend the two approaches whenever they are doing property appraisals. The value of land will typically be based on the sales approach though this can change if there isn't enough data available on land sales in the area. In such cases, a percentage or allocation method may be used.
The cost approach will typically be used to estimate the cost of the dwelling with a neighborhood adjustment factor thrown in. This factor will come from an analysis of similar modeled wellings that are located in similar market areas.
How Can I Lower My Property Taxes in Maryland?
Sure, you need to pay taxes on time to prevent the consequences and process that we mentioned above if you're gonna try to redeem it. The reality, however, is that property tax bills are a significant expense. As an investor, you know that your best performances will have a lot to do with the extent to which you can reduce your cost centers. How can you lower things legally in Maryland?
Appeal Your Property Assessment
Your concern may be that the fair market value determined by the assessor is incorrect. In this case, you can appeal the decision.
You have 45 days from receiving a notice of assessment to file your appeal. The first step is the supervisor's level, which will allow the customer time to discuss the value with an assessor. A local hearing date will be provided to the customer. At no cost, an area sales listing and a complimentary property worksheet will be provided.
Here the idea is to exchange information and allow you to discover as much as possible about how the appraisal was made. Note anything that could affect the value of the property. Once the information is presented at the hearing, a final notice will be sent, which includes the outcome of this appeal step.
Within 30 days of the final notice, a further appeal can be filed with the local Property Assessment Appeal Board. These are located within each of the 24 jurisdictions and are made up of local residents appointed by the governor following recommendations by the local government. This is the second step.
During this time, the customer and assessor are both allowed to provide supporting arguments for their idea of the fair market value of the property being reviewed. With a review of the information provided, a written notice of the outcome will be given to both parties. Note that there doesn't need to be a hearing if the appeal was submitted in writing.
There is an allowed third step since either party can appeal the board's decision via the Maryland Tax Court. The appeal filing must be done in writing and has to be submitted within 30 days of the decision by the board. No filing fee is required and you don't need an attorney.
Again, both the customer and the assessor can present their arguments on the fair market value matter of the property being assessed. Both parties will receive a decision. Since this is the last administrative appeal step, any further dispute of the value will need to go through the Circuit Court.
At that step, the hearing is formal. The court will look at the Maryland Tax Court record and decide on if an error was made.
While no one wants to have to deal with the aftermath of a disaster, you can also look into this method if you are affected by one, though it's not guaranteed. Should your property be destroyed or damaged because of a disaster, property tax relief may be available to you, particularly if the governor has declared that a state of emergency is in effect.
Investigate Other Exemptions and Tax Relief Programs
Different states will typically have tax exemption options that can be explored. In Maryland, some programs are offered at the state level, and others are offered at the county level. Your assessor can help you to ascertain what you may meet the eligibility criteria for.
Homeowners' Property Tax Credit Program
This program applies tax credits against the homeowner's bill provided that the applicable taxes are beyond a set percentage of gross income. Put simply, there will be a cap on the amount of property tax the homeowner will need to deal with.
Homestead Tax Credit Program
This one is meant to help Maryland homeowners be better able to manage sharp increases from assessments on their principal residence. Annually, the increase is capped at a fixed percentage. This requirement is imposed on every county and municipality and stands at 10% or less each year.
As indicated before, the different counties will also have their exemption programs that you can potentially benefit from. Let's use Montgomery County as an example yet again. Here are a few of the programs that you can currently take advantage of:
- Senior tax credit: This one was first introduced in 2007 and is open to eligible residents who are at least 65 years old. Once the credit is applicable, it will be added to the county supplement, which will ultimately reduce what would've been the original tax bill.
- Property tax credit: local income tax offset - By law, the country can grant a property tax credit against the tax levied on real property that helps to fully or partially offset any revenue increases that lead to a county income tax rate beyond 2.6%.
- Enterprise zone tax credit: This one is for businesses that are within specified areas in downtown Silver Spring, Wheaton, and Long Branch/Takoma Park. The intention is to fuel more economic growth. Of course, residential properties are disqualified. The credit is applied to whatever increase there is in assessment when compared to a base year. A 10-year period will be used for the comparison, with the credit being applied to whatever actual taxes come from the increase.
Undoubtedly, the idea of owning a property in Maryland can be an attractive prospect for numerous reasons. However, you shouldn't forget about the property tax element of things since doing so can lead to some unfortunate implications.
Protecting your investment means understanding the inner workings or at least what your obligations are. This will include knowing how assessments are done, the appeal process, when to expect your bills, how to pay, and what kinds of relief options are out there that you may be able to take advantage of.
Do your best to keep abreast of changes to what currently obtains and don't forget that there are tax professionals out there you can lean on.
If you're looking for more tips on property management accounting, check out our whitepaper on the best tips for simplifying this complex process.