Property Tax Relief for DC’s Low-Income Residents: Improvements Needed in DC’s “Schedule H” Credit| April 8th, 2008 |
By Lindsay C. Clark
PDF of this Report
- DC’s low-income property tax credit — Schedule H —has not been updated since it was created in the late 1970s. The income eligibility ceiling is just $20,000, among the lowest when compared with other states. The maximum credit of $750 also has not been adjusted in decades.
- If Schedule H had been adjusted for inflation, the income limit would now be $53,000 and the top benefit would be $2,000.
- Unnecessarily complex rules restrict participation in Schedule H. Only 19 percent of eligible households claim the credit.
- Schedule H is an important tool to help renters as well as homeowners. As in other states, Schedule H assumes that a portion of rent paid is property taxes passed on from the landlord.
- This report makes several recommendations for updating and simplifying Schedule H.
The District of Columbia’s booming real estate market has resulted in substantial increases in residential property values and rents in recent years. In response to rising assessments for homeowners, the District has adopted substantial property tax relief measures, such as a 10 percent cap on the extent to which taxable assessments can grow annually, an increase in the Homestead Deduction, and a cut in the property tax rate. The District has not implemented new tax relief measures targeted specifically on low-income homeowners, however, and it has not provided property tax relief for renters, even though renters pay property tax indirectly through their rent.
Low-income households —- and particularly renters —- are the most likely to be pressured by housing costs, including property taxes, and thus are the most in need of the help that property tax relief can provide. Targeted low-income property tax relief is especially important to the large majority of low-income households that don’t receive any housing subsidies. Some 46,000 DC households have severe housing costs burdens — defined as spending more than 50 percent of their income on housing. And the vast majority of these households (74 percent) are low-income.
Like 17 states, the District has implemented a policy to target property tax relief on low-income homeowners and renters, called the Homeowner and Rental Property Tax Relief Credit, or Schedule H. This credit has several shortcomings, however, that limit its ability to target meaningful property tax relief to low-income residents facing unmanageable property tax bills.
- The value of schedule H relief has lost substantial ground to inflation. The credit’s income eligibility limit of $20,000 and maximum benefit amount of $750 have not been adjusted for inflation since 1979, and these amounts are among the lowest when compared with other states’ low-income property tax relief programs. If Schedule H had been adjusted for inflation, the income eligibility ceiling would now be roughly $53,000 and the maximum benefit would be $2,000.
- Unnecessarily restrictive and complex rules limit the ability of the Schedule H credit to reach families in need of assistance. For example, the rules require people or families sharing a home to apply together even if they do not share income or file tax returns together, rather than allowing separate families to apply for the credit based on their share of rent.
- Schedule H participation has declined substantially in recent years, and is very low compared with other low-income tax credits. In 2005, only 8,600 tax filers claimed the credit in 2005, compared with 14,500 tax filers in 1996 — a decline of 60 percent. Moreover, the estimated take-up rate is about 19 percent of eligible households. This is far lower than participation in the Earned Income Tax Credit, which is claimed by 46,000 District families and individuals — more than 80 percent of those who are eligible.
- Schedule H rules limit benefits for renters. Schedule H assumes 15 percent of rent paid is the property tax portion. Among other state programs, the average property tax rent equivalent is 20 percent of rent. The lower level in the District results in lower tax credit amounts for eligible renters.
- Poorly worded filing instructions are likely to result in confusion for both tax filers and tax preparers and may contribute to low participation. For example, filers are required to report several sources of taxable and nontaxable income; yet instructions do not provide descriptions of what types of income to include and not include. This may lead some to include income that is not required, such as the value of food stamps.
Those residents most likely to experience high housing cost burdens, a component of which are high property tax bills, are low-income families; renters, who are disproportionately represented among low-income families; those living on fixed incomes, such as the elderly; and those who experience a personal crisis, such as a job loss. Therefore, property tax relief designed to target these groups is more desirable than broad-based cuts, which DC has already implemented. This report compares DC’s eligibility requirements to those of seventeen other states with low-income property credits, and offers recommendations for simplifying and updating Schedule H.