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HomeMy WebLinkAbout2018-05-25-REPSC-attach.FAQ The Residential Exemption Frequently Asked Questions 1. What is the Residential Exemption? The Residential Exemption (RE) is a state-authorized local tax option that cities and towns may adopt. It gives a uniform exemption to the assessed value of every owner- occupied home. Property tax is computed based on the assessed value of the property after the exempted amount is subtracted. The RE has the effect of reducing the tax burden on owner-occupied homes valued below a certain break-even point, and increasing the tax burden on homes valued above that break-even point. Residential properties that are not owner-occupied do not receive the exemption and have an increased tax burden. 2. Is Lexington adopting a Residential Exemption? No decision has been made regarding the future adoption of the Residential Exemption. This committee's charge is to study and report information about the effect of a RE in Lexington to the Lexington Selectmen. The Selectmen will subsequently make a policy decision. 3. With adoption of the Residential Exemption, does the Town collect less revenue? The RE is revenue-neutral. The tax rate is increased to compensate for the reduction in the amount of assessed value that is subject to taxation. 4. How will the Residential Exemption affect my personal tax bill? If you are the legal owner of the home that you live in and your home's assessment is below a certain break-even point, you will benefit from the Residential Exemption. If your home's assessment is above the break-even point, your tax bill will increase. Tax increases and decreases get larger the further away your property's assessed value is from the break-even point. If you do not live in the residential property you own, your property will not receive the exemption, but will be taxed at the increased tax rate. 5. What properties are eligible? Homes that are the primary residence (legal domicile) of the owner are eligible for the exemption. Generally speaking, homes that are held in trust, but list the occupant as trustee with a beneficial interest are also eligible, as are trusts that give a life estate to the occupant. Multi-family homes where the owner lives in one of the units are eligible. 6. What properties are not eligible? • Apartment buildings owned by corporations, and multi-family houses where the legal owner does not live in one of the units. • Unoccupied homes and individual homes that are rented out. • Side lots and empty land. • Homes held in trust that do not meet certain trustee, beneficial interest or life-estate requirements. Housing that is not subject to property tax, such as LexHab homes and Greely Village are not affected by the RE. 1 7. Are the owner's income or assets part of the qualification criteria? No. Qualification for the exemption is based solely on whether the parcel is owner- occupied. 8. How is the amount of the exemption determined? The amount of the exemption is based on a percentage of the average residential parcel in the town. The Selectmen may choose any percentage factor from 0% up to 35%. This resulting dollar amount becomes a flat exemption that is deducted from the assessment of every owner-occupied residence. Selecting a percentage factor for the RE is done annually as part of the tax rate setting process. 9. How is the Residential Exemption calculated? • The Assessors determine the value of the average residential parcel. • The Selectmen determine what percentage factor to adopt (from 0% to 35%) • That percentage factor is applied to the average residential parcel value to determine the uniform exemption that all qualified residential parcels will receive. Example: if the average residential parcel is $1,000,000, and the Selectmen were to opt for a RE at 10%, then $100,000 would be deducted from the assessment of every owner-occupied residential parcel town wide. Thus, a house assessed at $700,000 house would pay tax on $600,000, and a house assessed at $2,000,000 would pay tax on $1,900,000. These numbers are presented solely for the purpose of illustrating how the calculation is done. 10.How are commercial properties affected? The Residential Exemption has no effect on commercial properties. 11.Who decides whether the Town of Lexington will adopt this program? The Board of Selectmen holds the authority to adopt the Residential Exemption. 12.If the Selectmen were to adopt the Residential Exemption, when would it begin? The Assessor's Department would need about a year to do the initial research into owner-occupancy and implement the exemption. 13.What cities and towns have adopted the Residential Exemption? The Residential Exemption has been available since 1979. Since that time, seventeen cities and towns have adopted the RE; two of those municipalities later rescinded it. Generally, the adopters are towns with large non-resident summer populations such as Barnstable, Nantucket and Tisbury, or dense municipalities such as Boston, Brookline, Cambridge, Chelsea, Everett, Malden, Waltham and Watertown that have large rental and absentee owner populations. 14.What kind of paperwork process does the Residential Exemption entail? Generally, homeowners will have to fill out an application and supply some kind of proof that their home is their primary residence (legal domicile). In existing RE municipalities, proof is provided by showing such items a redacted federal tax return or a driver's license in conjunction with voter registration data. The exact process for Lexington would be determined if the RE were adopted. 2 15.Is the program expensive to administer? This is one of the questions under present study. Cities and Towns do not have a mechanism for identifying rental properties. The process of determining which homes qualify initially requires the Assessors to notify all 10,000+ Lexington residential homeowners to have them fill out applications. The responses must be evaluated and verified. More than 1,400 Lexington residential parcels are owned by trusts. Each of those trusts, which can vary widely in the way that they are written and the language that they employ, must be reviewed to determine whether the home qualifies as owner- occupied. Each year, homes that experienced any ownership change must be evaluated. 16.Can the Assessor's determination be appealed? Yes. Appeals of owner-occupancy are processed as property tax abatements. Homeowners have a three month window to file for abatement after their actual third quarter tax bill is issued. Abatements are not issued retroactively for previous tax years. Prepared by the Residential Exemption Policy Study Committee (Ad Hoc) 5/29/2018 3