I have been getting a lot of questions from Minnesota home owners and future buyers about the homestead credit previously available on Minnesota properties. The Minnesota Association of Realtors has recently put forth a helpful explanation about the new Homestead Market Value Exclusion (HMVE) that was created in the 2011 legislative session.
The new HMVE is a recent change to how homestead property taxes are calculated. It replaces the Homestead Market Value Credit (HMVC). Under the old credit system, the credit lowered a homeowner’s property tax burden based on the value of their home. The state then reimbursed local governments for the lost amount of their levy (revenues) due to the credit. However, due to the state’s budget problems, it was rare that local governments were fully reimbursed by the state. Eliminating the credit and creating an exclusion removes the possibility of the state withholding funds and creates more stability for local governments.
The new program excludes a portion of the homeowner’s market value from the property tax calculation. The amount of value excluded is directly proportional to the credit the home received under the old law. The actual tax burden on homesteads could be lesser or greater depending upon the mix of properties in the taxing jurisdiction and the levy decisions made by local governments (for more information on the technical calculations, please see further below).
Technical Calculations
Description: Under the old credit system, the credit amount would rapidly increase as a home value approached $76,000 with the maximum credit amount of $304. After $76,000 the credit would decrease until it was completely phased out with a home value of over $414,000. The new exclusion mimics this same scale as homes approaching $76,000 would have a rapidly increasing exclusion of value, with a home valued at $76,000 receiving a maximum exclusion of 40% of their home value from property tax calculations. The percentage then decreases and is phased out at homes valued over $414,000.
Calculations
| Old Law with Credit | New Law with HMVE |
| Market Value (MV) determined by Assessor | Market Value (MV) determined by Assessor |
| N/A | Calculate exclusion (HMVE):MV < $76K: Exclusion = 0.4 x MV
MV $76K – $414K: Exclusion=$30,400 – MV > $414K: Exclusion = $0 |
| N/A | Taxable MV = MV – Exclusion |
| Homes < $500K: MV x .1% = Tax Capacity (TC)Homes > $500K: $5,000 + ((MV – $500K) x 1.25%) = TC | Homes < $500K: Taxable MV x .1% = Tax Capacity (TC)Homes > $500K: $5,000 + ((Taxable MV – $500K) x 1.25%) = TC |
| Gross Tax = TC x total tax rate (county + city + special district rate) | N/A |
| HMVC = MV < $76K: MV x .004MV $76K – $414K: $304 – ((MV – $76K) x .0009)
MV > $414K: $0 |
N/A |
| Net Tax = Gross Tax – HMVC | Net Tax = TC x total tax rate (county + city + special district rate) |
(Referendum taxes are not covered here)
