2012 Changes in Homestead Benefits

2012 Changes in Homestead Benefits:

2011 Law Change:
A New Homestead Market Value Exclusion replaces the Homestead Market Value Credit:

The 2011 Legislation repealed the Homestead Market Value Credit, (the homestead credit), and replaced it with a new Homestead Market Value Exclusion. The last year of the credit is for property taxes paid in 2011 and the exclusion begins for property taxes payable in 2012.

*Click here for information on how the new law compares to the old law (PDF)*

Why the State Change:

The elimination of the market value homestead credit was included in the 2011 budget bills passed in the legislative special session in July of 2011. By eliminating the credit, the state was able to save roughly $260 million each year. This was one cost saving measure the state used to close the $5 billion two-year state budget deficit.
Under the old credit law, the state was reducing the taxes paid by homesteaded property and instead the state was promising to pay that portion of the tax to the local taxing districts (i.e., your city, county, school, and other local taxing districts). However, in seven of the last eight years, the state did not pay the full credit amount to at least some local governments, due to its budget problems. This meant each year many local governments were left with a deficit in their budgets because of the state’s inability to pay the amount it owed.

What is the Impact:

The impact of this state change will vary for each property depending on a variety of factors. However, in general, the elimination of the homestead credit and replacement with a homestead exclusion is going to mean higher property taxes for most property owners, even if property tax levies adopted by local governments do not increase. The bullets below explain the most significant impacts of this change:

The state is no longer providing a homestead credit and instead the entire levy is being paid by local property taxpayers.
The new homestead exclusion lowers the tax base, which has led to increases in the property tax rates of most local taxing jurisdictions. A property tax rate is calculated by dividing the property tax levy by the total tax base.
For properties that are non-homestead, including commercial and industrial property, the higher property tax rates are likely to mean higher property tax bills even if their values have declined.
For properties that are homestead, the new homestead exclusion may not be enough to offset the increases in tax rates and the elimination of the homestead credit, thus many homestead properties as well will experience tax increases.

Click here for more information from the Minnesota State Tax site.

Click here to find the Current Year Property Tax Refund, Form M1PR.

Information contained in this flyer was gathered from bulletins and documents prepared by the
Minnesota House Research Department and Minnesota Department of Revenue.