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# How to Calculate Homestead Credit

Original post by Ron White of Demand Media

Buying a home has tax benefits.

A homestead tax credit cuts a homeowner's annual property tax bill by providing the homeowner with a reduction in the property's taxable value. Many states have enacted variations on the homestead tax credit. The most basic approach involves giving taxpayers a credit equal to the tax that would apply on a certain dollar amount. Other states only allow a credit if an assessment increases above a cap, which can be defined in dollars or as a percentage. In states that use a cap, the credit applies to the tax that otherwise would be required for assessment dollars above the cap.

## Contents

### Step 1

Write down the assessed value of the home. Contact your local tax collector's office for the assessed value if you don't already have this information. Commonly, the assessed value reflects 30 to 35 percent of the home's market value.

### Step 2

Calculate the dollar amount of your assessment cap. In Maryland, the homestead credit applies only to an increase of last year's assessment that exceeds 10 percent of the old assessment. In other states, the percentage is lower. To calculate the dollar amount for this step, multiply the old assessment by the assessment cap percentage. This establishes the dollar amount that the assessed value can increase. In some states, the homestead credit applies to a set dollar amount rather than to a percentage of increase. In Florida, for example, the homestead credit applies to \$50,000 of the assessed value. There's no need for a calculation in these states and you can skip to Step 5.

### Step 3

Add the capped amount to the old assessment. This is the amount on which you will apply your tax rate.

### Step 4

Subtract the amount in Step 3 from the new assessment. The result is the dollar amount that will not be multiplied by the tax rate.

### Step 5

Multiply the dollar amount of the homestead credit by the tax rate to figure the actual dollar amount of your credit. If the tax rate is defined per \$100 of assessed value, remember to divide the result from Step 4 by 100 before multiplying by the rate.

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### Tips & Warnings

• The homestead credit only applies to certain property owners. If ownership of the home has changed since the last tax cycle, the new owner cannot claim a credit.