In Maryland, all real property is assessed to reflect updated market values on a triennial basis. The location of the property determines the year in which specific real property is re-assessed. An appeal of a proposed triennial re-assessment must be filed with the Supervisor of Assessments within 45 days of the applicable assessment notice; however, the little known out-of-cycle appeal procedures provide an additional opportunity for challenging an assessment and saving associated tax in other years. Given the uncertainty and changes in the real estate market in 2020, property owners should consider challenging assessed values for 2021 using either the in-cycle or out-of-cycle appeal procedures.
Property owners typically must file an appeal of a triennial assessment within 45 days of receipt of notice. If not challenged, the assessed value will apply for the entire triennial cycle. However, by statute, property owners may file a Petition for Review by January 1 in either of the two years for which the real property is not scheduled to be re-assessed. See Maryland Annotated Code, Tax-Property § 14-503 (may appeal value on or before date of finality for next taxable year). Accordingly, for 2021, any out-of-cycle appeals to take effect for next year must be filed by December 31, 2020.
As with other real property tax assessments, an assessment appeal focuses on the valuation of the property as of the date of finality. The date of finality for an out-of-cycle appeal filed by December 31, 2020 is January 1, 2021. If an out-of-cycle appeal is successful in reducing the assessed value of the property, the new assessed value will be immediately used for tax purposes. (That is, an out-of-cycle appeal filed by December 31, 2020 will take effect on January 1, 2021 regardless of when the case is resolved.) On the flip side, if an out-of-cycle appeal results in an increase in value, the assessment will be phased in over the remainder of the cycle. Importantly, the State Department of Assessments and Taxation take the position that an out-of-cycle appeal can result in an increase, decrease, or no change in assessed value of the property. Generally, the same appeal rights and procedures apply to out-of-cycle appeals as apply to in-cycle appeals. For example, property owners may appeal a determination of the Supervisor of Assessment to the Property Tax Assessment Appeals Board and, additionally, to the Maryland Tax Court.
For property owners, an uncertain economy and regulatory changes related to the COVID-19 pandemic have significantly altered the landscape of the Maryland real estate market in 2020. Closures of restaurants, malls, and other retail establishments have caused significant shifts in occupancy rates and pricing. A dramatic increase in work-from-home options also poses significant long-term risks to properties historically leasing office space to professional firms. To make matters worse, local regulations have halted the ability of property owners to evict tenants and pursue other judicial remedies
As a result of these changes, for properties assessed in 2019 and 2020, the out-of-cycle appeal procedures present an opportunity for tax savings. If an out-of-cycle appeal is timely filed, property owners can make a compelling argument that the market value has decreased due to these outside influences. If an appeal is pursued, property owners should be prepared to present financial information documenting a decrease in net income in a year-over-year basis, to show that other comparable properties have experienced a decrease in sales price or marketability, and may consider obtaining an independent appraisal to document the diminution in value. If successful, a decrease in valuation resulting from the out-of-cycle appeal may not only reduce the tax cost for the next one or two year period, but may also help to justify a reduced valuation for the next valuation cycle. Given the economic issues of 2020 and future uncertainty, property tax appeals may provide an opportunity to offset some of the financial losses already experienced by property owners.
With out-of-cycle appeals due by December 31, 2020, Taxpayers owning real property affected by COVID-19 and/or other market conditions occurring in 2020 should contact a tax advisor as soon as possible to discuss their options to challenge property valuations. Proper presentation of an appeal can and will, in some cases, produce substantial tax savings in the short and long-term. At the same time, a tax advisor can position property owners to overcome strong opposition from local governments faced with growing budget shortfalls.
These descriptions are intended for informational purposes only and should not be taken as legal advice on any particular set of facts or circumstances. Rosenberg Martin Greenberg, LLP is a full-service law firm experienced in all aspects of federal and state tax laws, white collar criminal litigation, business and estate planning, and more. For questions on this article, please contact info@rosenbergmartin.com.