HomeMy WebLinkAboutMarket Value Homestead Credit 101
LEAGUE OF
MINNESOTA
CITIES
CONNECfING & INNOVATING
SINCE 1913
Market Value Homestead Credit 101
This guide i~ intended to describe the bas1ics of the Market Value Homestead Credit (MVHC) program. The
program was designed to provide state-paid property tax relief to owners of certain qualifying homestead
property. The MVHC program is closely tied to the property tax system, a detailed description of which
can be found in the "Property Taxation 101" guide.
Background
In the 2001 legislative session, state
lawmakers eliminated the Homestead and
Agricultural Credit Aid (HAC A) program,
which had provided $200 million in state aid
to cities for property tax relief. Of these
funds, $140 million were folded into the
Local Government Aid (LGA) program. The
2001 property tax reform bill eliminated the
general education property tax levy, bringing
tax relief to all prQperty owners, including
homeowners, aDd replaced it with a new state
property tax on businesses. The Legislature
also created the Market Value Homestead
Credit (MVHC) program, giving most
homeowners additional tax relief.
How it works for homeowners:
"The cred it"
The MVHC program reduces the property tax
owed on a homestead property by 0.4% of
the homestead's market value, up to a
maximum per property of $304.
Credit = market value x 0.4%
The maximum credit of $304 occurs at a
market value of $76,000. For homesteads
145 UNrIVE'RSlTY AVE. WEST
ST. PAUL, MN SS103-204:4
with market values over $76,000, the credit is
reduced by 0.09% of the excess market value.
Credit = $304 - ((market value-$76000) x 0.09%)
Homesteads with market value of $413,778
and higher do not receive any credit. The
table be,low shows some sample market
values and corresponding credit amounts.
Homestead
Market Value
$50,000
$76,000
$100,000
$200,000
$350,000
$413,778
Market Value
Homestead Credit
$200
$304
$282
$192
$57
$0
On each homeowner's property tax bill, the
market value homestead credit is allocated to
the local taxing districts (city, county, school,
special districts) according to the share of the
total tax rate that each taxing district
represents. For example, if the city tax rate is
30% and the total tax rate is 120%, a fowrth
of the market value credit is allocated to the
city portion of the homest€ad's property tax
bill.
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How it works for cities:
"The reimbursement"
The MVliC reimbursement is not an aid; it
does not represent dollars in addition to what
the city has levied. The reimbursement
makes up part of a city's levy. Cities do not
budget for it. The credit to homeowners
reduces a city's property tax receipts by the
amount of the credit allocated to the city.
This means the city will receive less than its
certified tax levy from taxpayers. The state
makes up the difference by reimbursing the
city for the city portion of the credit received
by property OWlllers. The combination of
after-credit tax receipts and the MVHC
reimbursement should equal the city's
certified levy. For most cities, between five
and fifteen percent Qfthe city's levy is paid
by the state through the MVHC
reimbursement.
An example helps to illustrate how the
program works. Assume a city certifies a
levy of$100. After taxpayers pay their tax
bills, $90' is generated for the city. The
difference between what is generated from
taxpayers ($90) and what the city certified
($100) is made up by the MVHC
reimbursement ($10). The city must still
certify $100 for its levy in order to realize the
full $100 from the combination of taxpayer
payments and the reimbursement.
The 2003 legislature balanced a major state
deficit by cutting state aids and credits to
cities. Under the cuts, some cities that receive
little or nQ Local Government Aid
experienced a reduation in the MVHC
reimbursement. The 2005 legislature
extended the MVHC reimbursement cuts for
103 cities for 2005 and 2006. The funding
for the city portion of the MVHC
reimbursement was reduced from
approximately $82 million to $65 million for
Revised August 2008
these years. While property owners continued
to receive the benefit of the full credit, cities
were not reimbursed for the full amount of
those credits. These cities therefore did not
collect their total certified levy amount. In
other words, for these cities, the gap between
the certifi,ed levy and what the taxpayers pay
was not filled completely (or at all). Ttle
MVHC reimbursements were restored for
taxes payable in 2007.
Cities receive their market value credit
reimbursement in two installments from the
state, in October and in December.
Information on the amount of each. city's
credit is usually available in late summer
each year.
MVHC and Tax Increment Financing (TIF)
districts
TIF districts are eligible for the market value
credit when a property receiving the credit is
located within the TIF district. The PQrtiQn
of the credit allocated to the TIF district is
based on the percentage of the parcel's value
that is captured in the TIF district. The
market value credits for a TIF district are sent
to the city in each December. Cities with TIF
districts can determine the amount of the
market value credit the districts will receive
by consulting the Department of Revenue.
Agricultural Market Value Credit
The 2001 legislature also created the
Agricultural Market Value Credit program,
which reduces the property tax of agricultural
homestead property up to $345, based upon a
percentage of market value. This credit
program, like the MVHC, results in a portion
of the city's certified levy paid by the state
instead of local taxpayers. Most cities receive
very little, if any, of this credit
reimbursement.