Homestead Market Value Credit Changes
The Homestead Market Value Credit program provided property tax relief to lower-valued homes until 2010 when the State defunded the program. For taxes payable in 2011 and prior, the Homestead Market Value Credit program reduced the property tax owed on a homestead property by 0.4% of the market value, up to a maximum of $304. The maximum credit occurred at a $76,000 market value, and declined as the value increased, entirely phasing out at $413,778. Municipalities received state aid to compensate for the loss of the property tax revenue attributable to this program. The aid was distributed to taxing districts in proportion to the total tax bill. Similarly valued homes across the state received the same amount of credit.
When the program was eliminated during the 2011 Special Session, it was replaced with the new Homestead Market Value Exclusion. Under the new program, homes with $76,000 in market value will receive the maximum exclusion of $30,400, with exclusions gradually decreasing until the exclusion is fully phased out for homes with valuations exceeding $413,800. This will lower the property tax bill for lower-valued homes because less of the value of those homes is taxable (part of the taxable value is excluded). As a result, the overall tax base shrinks, which means that the tax rate charged to all properties increases and the tax burden shifts from the State to the local taxpayers. Because of the higher tax rate, properties other than lower-valued homes will likely see a tax increase under the State’s new exclusion program.
Unlike the old Homestead Market Value Credit where the same value home across the state received the same credit, under the new program the effect will vary greatly depending on many factors including the tax base composition within the property classifications, the tax rate of the jurisdiction, and the unique mix of properties in each taxing jurisdiction.
Below is an example of the changes using the old program and the new program.
NTC Based Taxes
EMV (Estimated Market Value)
TMV (Taxable Market Value)
NTC (Net Tax Capacity)
Gross Tax (NTC x Tax Rate of 104%)
Since the Mayor’s property tax levy is at a 0% change and 99.7% of the residential homesteaded properties have flat or decreasing market values, the predominant factor (not the total factor) for any properties experiencing a tax increase is a result of the transfer of tax burden from the State to the taxpayers though the new market value exclusion methodology.
Even as the tax rate is increasing, the value of most residential properties within the City is decreasing. The table below shows the percentage of Minneapolis residential properties grouped according to their estimated City tax impacts payable in 2012. The majority of Minneapolis taxpayers will see the City portion of their taxes drop in 2012.
The Minnesota Department of Revenue has more information about recent changes to homestead benefits (pdf).
Last updated Jan. 3, 2012