Saturday, June 15, 2024

Focus on New Laws: 4d Property Tax Classification and Transition Aid


September 18, 2023

The reduction in the 4d(1) property tax classification rate will cause a tax shift onto other types of property.

Included in the 2023 omnibus tax bill was a reduction in the low-income housing rental property, 4d(1) tax classification. Under previous law the first $100,000 of value had a class rate of 0.75%, while value above $100,000 had a class rate of 0.25%.

What the new law does

The new law makes several changes. Most significantly it reduces the 0.75% rate on the first $100,000 of value to 0.25%, creating one flat rate on 4d(1) property. The reduction in the class rate for 4d(1) property will cause a property tax shift onto other properties.

The new law also:

  • Allows community land trust property that is owned and used as a homestead by the occupant to qualify for the newly established Class 4d(2), which is taxed at a 0.75% flat rate and is eligible for the homestead credit refund. Previously these properties were classified as homesteads and taxed at a higher rate. These changes are both effective with assessment year 2024.
  • Provides some degree of guardrails as well as two-year transition aid for qualifying cities. It requires the owners of 4d low-income housing property to use their property tax savings from the classification to either provide property maintenance, property security, improvements to the property, rent stabilization, or increases to the property’s reserve account.
  • Requires a property owner to receive approval by the governing body of the city or town where the property is located before applying to the Housing Finance Agency for initial Class 4d(1) classification. Municipal approval is not required if a property is located in a city or town where the net tax capacity of Class 4d(1) property did not exceed 2% of the jurisdiction’s total net tax capacity in the prior assessment year.
  • Includes a provision that provides transition aid in 2025 and 2026 only for cities in which the net tax capacity of 4d(1) property exceeds 2% of the total net tax capacity in assessment year 2023. This aid is only available for aid payable in 2025 and 2026. The total aid paid by the state is estimated to be $580,000 each year.

View a list of qualifying cities and the amount of estimated aid they’re expected to receive (pdf)

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