1 of 35

Property Tax Relief for Homeowners�and Nonprofit Payments in Lieu of Taxes

Adam H. Langley

Associate Director of Tax Policy, Lincoln Institute of Land Policy

​

​

D.C. Tax Revision Commission

January 19, 2023

1

2 of 35

Tax Revenue for Washington, DC

($ Billions, FY21)

Source: 2022 DC Tax Facts.

2

3 of 35

  • Stable revenue source

​

Strengths of the Property Tax

Source: Property Tax Relief for Homeowners. Lincoln Institute of Land Policy (2021).

3

4 of 35

  • Stable revenue source
  • Efficient
    • Taxation and Economic Growth. 2008. OECD.

​

​

​

Strengths of the Property Tax

4

5 of 35

  • Stable revenue source
  • Efficient
  • Immobile tax base

​

​

Strengths of the Property Tax

5

6 of 35

  • Perceived regressivity

​

Challenges for the Property Tax

Source: Who Pays? Institute on Taxation & Economic Policy. 6th edition.

6

7 of 35

  • Perceived regressivity
  • Not directly tied to ability to pay
    • Concerns about seniors on fixed incomes, people who lost their job, low-income households in gentrifying areas

​

Challenges for the Property Tax

7

8 of 35

  • Perceived regressivity
  • Not directly tied to ability to pay
  • Volatility

​

Challenges for the Property Tax

8

9 of 35

  • Perceived regressivity
  • Not directly tied to ability to pay
  • Volatility

​

Challenges for the Property Tax

Proven options to address these challenges

​

Design relief programs to address specific challenges and avoid overly broad measures

9

10 of 35

Outline

  • Strengths and challenges
  • Property tax relief in D.C.
    • Why
    • How
    • Recommendations
  • Nonprofit PILOTs

Download Report

www.lincolninst.edu/publications

10

11 of 35

  • Why: Flat dollar exemption makes property tax more progressive and offsets any assessment inequities

​

  • D.C. Policy:
    • All owner-occupied homes are eligible
    • First $84,000 exempt (TY2023)
      • $420k home: 20% savings (Effective tax rate ≈ 0.68%)
      • $840k home: 10% savings (E.T.R. ≈ 0.77%)
      • $1.68m home: 5% savings (E.T.R. ≈ 0.81%)

​

  • Recommendation
    • Maintain current policy
    • Consider increasing the deduction

​

Homestead Deduction

11

12 of 35

  • Why: Belief that seniors are especially needy

​

  • D.C. Policy (TY2023):
    • 50% tax credit (Income < $149,400)
    • 65+ or disabled

​

  • Recommendation
    • Convert to flat dollar credit (e.g., $2,000, not 50%)
      • Percentage credits are NOT cost effective
        • $420k home: $1,428 savings (50%)
        • $840k home: $3,213 savings (50%)
        • $1.68m home: $6,783 savings (50%)
    • Reduce or eliminate tax preferences for seniors
      • Age is poor proxy for need; Better options for needy seniors

​

Credit for Seniors and Disabled Persons

12

13 of 35

  • Why: Target tax relief for households with highest property tax burdens relative to income
    • Seniors on fixed incomes, workers who lost job, etc.
    • Most cost-effective property tax relief option

​

  • D.C. Policy (TY2021):
    • Offsets property tax that exceeds threshold percent of income
      • Seniors (70+): 3% ($76,700 income ceiling)
      • Under age 70: Threshold varies ($56,200 income ceiling)
        • 3% (Income < $25,000)
        • 4% ($25,000 - $51,999)
        • 5% ($52,000 - $56,200)
    • Renters eligible (Assume property tax = 20% of rent)
    • Max Credit = $1,225

Circuit Breaker

13

14 of 35

​

  • Recommendations
    • Raise or eliminate max credit (Currently $1,225)
      • Otherwise, inadequate relief for many taxpayers
    • Raise income ceiling (Currently $56,200 if age < 70)
      • Otherwise, moderate income households are ineligible
      • Could be new 6% bracket for income over $56,200

​

​

​

Circuit Breaker

14

15 of 35

    • Raise or eliminate max credit (Currently $1,225)
    • Raise income ceiling (Currently $56,200 if age < 70)

​

​

​

​

​

​

Home Value

​

​

300k

400k

500k

600k

700k

Income

10k

6.1%

14.6%

23.1%

31.6%

40.1%

20k

3.1%

7.3%

11.6%

15.8%

20.1%

30k

3.2%

4.9%

7.7%

10.5%

13.4%

40k

3.4%

3.7%

5.8%

7.9%

10.0%

50k

3.5%

3.5%

4.6%

6.3%

8.0%

55k

3.3%

3.6%

4.2%

5.7%

7.3%

60k

3.1%

4.5%

5.9%

7.3%

8.7%

70k

2.6%

3.8%

5.1%

6.3%

7.5%

80k

2.3%

3.4%

4.4%

5.5%

6.5%

90k

2.0%

3.0%

3.9%

4.9%

5.8%

Property Tax as a % of Income

Current Law: After homestead deduction

and circuit breaker (Under age 65)

Circuit Breaker Recommendations

Source: Speaker’s calculations based on current law.

15

16 of 35

    • Raise or eliminate max credit (Currently $1,225)
    • Raise income ceiling (Currently $56,200 if age < 70)

​

​

​

​

​

​

Home Value

​

​

300k

400k

500k

600k

700k

Income

10k

6.1%

14.6%

23.1%

31.6%

40.1%

20k

3.1%

7.3%

11.6%

15.8%

20.1%

30k

3.2%

4.9%

7.7%

10.5%

13.4%

40k

3.4%

3.7%

5.8%

7.9%

10.0%

50k

3.5%

3.5%

4.6%

6.3%

8.0%

55k

3.3%

3.6%

4.2%

5.7%

7.3%

60k

3.1%

4.5%

5.9%

7.3%

8.7%

70k

2.6%

3.8%

5.1%

6.3%

7.5%

80k

2.3%

3.4%

4.4%

5.5%

6.5%

90k

2.0%

3.0%

3.9%

4.9%

5.8%

Property Tax as a % of Income

Current Law: After homestead deduction

and circuit breaker (Under age 65)

Full circuit breaker credit

Circuit Breaker Recommendations

Source: Speaker’s calculations based on current law.

16

17 of 35

    • Raise or eliminate max credit (Currently $1,225)
    • Raise income ceiling (Currently $56,200 if age < 70)

​

​

​

​

​

​

Home Value

​

​

300k

400k

500k

600k

700k

Income

10k

6.1%

14.6%

23.1%

31.6%

40.1%

20k

3.1%

7.3%

11.6%

15.8%

20.1%

30k

3.2%

4.9%

7.7%

10.5%

13.4%

40k

3.4%

3.7%

5.8%

7.9%

10.0%

50k

3.5%

3.5%

4.6%

6.3%

8.0%

55k

3.3%

3.6%

4.2%

5.7%

7.3%

60k

3.1%

4.5%

5.9%

7.3%

8.7%

70k

2.6%

3.8%

5.1%

6.3%

7.5%

80k

2.3%

3.4%

4.4%

5.5%

6.5%

90k

2.0%

3.0%

3.9%

4.9%

5.8%

Property Tax as a % of Income

Current Law: After homestead deduction

and circuit breaker (Under age 65)

Full circuit breaker credit

To the right of this line, subject to $1,225 cap

Prop. tax as % income

​

Under 5%

​

5 – 10%

​

Above 10%

Unshaded cells are below the threshold

Circuit Breaker Recommendations

Source: Speaker’s calculations based on current law.

17

18 of 35

    • Raise or eliminate max credit (Currently $1,225)
    • Raise income ceiling (Currently $56,200 if age < 70)

​

​

​

​

​

​

Home Value

​

​

300k

400k

500k

600k

700k

Income

10k

6.1%

14.6%

23.1%

31.6%

40.1%

20k

3.1%

7.3%

11.6%

15.8%

20.1%

30k

3.2%

4.9%

7.7%

10.5%

13.4%

40k

3.4%

3.7%

5.8%

7.9%

10.0%

50k

3.5%

3.5%

4.6%

6.3%

8.0%

55k

3.3%

3.6%

4.2%

5.7%

7.3%

60k

3.1%

4.5%

5.9%

7.3%

8.7%

70k

2.6%

3.8%

5.1%

6.3%

7.5%

80k

2.3%

3.4%

4.4%

5.5%

6.5%

90k

2.0%

3.0%

3.9%

4.9%

5.8%

Property Tax as a % of Income

Current Law: After homestead deduction

and circuit breaker (Under age 65)

Full circuit breaker credit

To the right of this line, subject to $1,225 cap

Prop. tax as % income

​

Under 5%

​

5 – 10%

​

Above 10%

Unshaded cells are below the threshold

Circuit Breaker Recommendations

Source: Speaker’s calculations based on current law.

18

19 of 35

    • Raise or eliminate max credit (Currently $1,225)
    • Raise income ceiling (Currently $56,200 if age < 70)

​

​

​

​

​

​

Home Value

​

​

300k

400k

500k

600k

700k

Income

10k

6.1%

14.6%

23.1%

31.6%

40.1%

20k

3.1%

7.3%

11.6%

15.8%

20.1%

30k

3.2%

4.9%

7.7%

10.5%

13.4%

40k

3.4%

3.7%

5.8%

7.9%

10.0%

50k

3.5%

3.5%

4.6%

6.3%

8.0%

55k

3.3%

3.6%

4.2%

5.7%

7.3%

60k

3.1%

4.5%

5.9%

7.3%

8.7%

70k

2.6%

3.8%

5.1%

6.3%

7.5%

80k

2.3%

3.4%

4.4%

5.5%

6.5%

90k

2.0%

3.0%

3.9%

4.9%

5.8%

Property Tax as a % of Income

Current Law: After homestead deduction

and circuit breaker (Under age 65)

Full circuit breaker credit

To the right of this line, subject to $1,225 cap

Prop. tax as % income

​

Under 5%

​

5 – 10%

​

Above 10%

Unshaded cells are below the threshold

Above income ceiling

Circuit Breaker Recommendations

Source: Speaker’s calculations based on current law.

19

20 of 35

    • Raise or eliminate max credit (Currently $1,225)
    • Raise income ceiling (Currently $56,200 if age < 70)

​

​

​

​

​

​

Home Value

​

​

300k

400k

500k

600k

700k

Income

10k

6.1%

14.6%

23.1%

31.6%

40.1%

20k

3.1%

7.3%

11.6%

15.8%

20.1%

30k

3.2%

4.9%

7.7%

10.5%

13.4%

40k

3.4%

3.7%

5.8%

7.9%

10.0%

50k

3.5%

3.5%

4.6%

6.3%

8.0%

55k

3.3%

3.6%

4.2%

5.7%

7.3%

60k

3.1%

4.5%

5.9%

7.3%

8.7%

70k

2.6%

3.8%

5.1%

6.3%

7.5%

80k

2.3%

3.4%

4.4%

5.5%

6.5%

90k

2.0%

3.0%

3.9%

4.9%

5.8%

Property Tax as a % of Income

Current Law: After homestead deduction

and circuit breaker (Under age 65)

Full circuit breaker credit

To the right of this line, subject to $1,225 cap

Prop. tax as % income

​

Under 5%

​

5 – 10%

​

Above 10%

Unshaded cells are below the threshold

Above income ceiling

Circuit Breaker Recommendations

Source: Speaker’s calculations based on current law.

20

21 of 35

  • Recommendations
    • Raise or eliminate max credit (Currently $1,225)
      • Otherwise, inadequate relief for many taxpayers
    • Raise income ceiling (Currently $56,200 if age < 70)
      • Otherwise, moderate income households are ineligible
      • Could be new 6% bracket for income over $56,200
    • Use co-payment requirement to control costs
      • Ex: Michigan has 40% co-payment
    • Convert to property tax credit (Currently income tax credit)
      • Ensures timely tax relief

​

​

Circuit Breaker

21

22 of 35

  • Why: Protect taxpayers against sharp increases in taxes

​

  • D.C. Policy (TY2023):
    • Credit limits growth in assessed value to 10% per year
    • 2% per year (65+ or disabled, Income < $149,400)
      • 2% (TY23-forward), 5% (TY19-TY22), 10% (Before TY19)

​

  • Recommendations
    • Eliminate 2% cap for seniors
      • Assessment limits have severe unintended consequences
        • Large disparities in effective tax rates
        • Shift tax burden towards poorer neighborhoods

Assessment Increase Cap

22

23 of 35

Recap on Property Tax Relief Options

Program

Cost Effectiveness

Rationale

Recommendations

Circuit Breaker

High

Prevent taxpayers from being overburdened by property taxes

Strengthen

-Raise or eliminate max credit

-Raise income ceiling

-Use co-payment requirement

23

24 of 35

Recap on Property Tax Relief Options

Program

Cost Effectiveness

Rationale

Recommendations

Circuit Breaker

High

Prevent taxpayers from being overburdened by property taxes

Strengthen

-Raise or eliminate max credit

-Raise income ceiling

-Use co-payment requirement

Homestead Deduction

Moderate

Progressivity; Offset assessment inequities

Maintain

-Consider increase

24

25 of 35

Recap on Property Tax Relief Options

Program

Cost Effectiveness

Rationale

Recommendations

Circuit Breaker

High

Prevent taxpayers from being overburdened by property taxes

Strengthen

-Raise or eliminate max credit

-Raise income ceiling

-Use co-payment requirement

Homestead Deduction

Moderate

Progressivity; Offset assessment inequities

Maintain

-Consider increase

Tax Credit for Seniors & Disabled

Low

Belief that seniors are especially needy

Reform or Eliminate

-Use flat dollar credit, not %

-Reduce or eliminate tax preference for seniors

25

26 of 35

Recap on Property Tax Relief Options

Program

Cost Effectiveness

Rationale

Recommendations

Circuit Breaker

High

Prevent taxpayers from being overburdened by property taxes

Strengthen

-Raise or eliminate max credit

-Raise income ceiling

-Use co-payment requirement

Homestead Deduction

Moderate

Progressivity; Offset assessment inequities

Maintain

-Consider increase

Tax Credit for Seniors & Disabled

Low

Belief that seniors are especially needy

Reform or Eliminate

-Use flat dollar credit, not %

-Reduce or eliminate tax preference for seniors

Assessment Cap

Low

(& creates inequities)

Protect individual taxpayers against sharp increases in taxes

Eliminate 2% cap for seniors

-Tight assessment caps create large inequities

26

27 of 35

Recap on Property Tax Relief Options

Program

Cost Effectiveness

Rationale

Recommendations

Circuit Breaker

High

Prevent taxpayers from being overburdened by property taxes

Strengthen

-Raise or eliminate max credit

-Raise income ceiling

-Use co-payment requirement

Homestead Deduction

Moderate

Progressivity; Offset assessment inequities

Maintain

-Consider increase

Tax Credit for Seniors & Disabled

Low

Belief that seniors are especially needy

Reform or Eliminate

-Use flat dollar credit, not %

-Reduce or eliminate tax preference for seniors

Assessment Cap

Low

(& creates inequities)

Protect individual taxpayers against sharp increases in taxes

Eliminate 2% cap for seniors

-Tight assessment caps create large inequities

Circuit breaker also

addresses these challenges

27

28 of 35

  • Nonprofits exempt from property taxes in all 50 states
  • Nonprofits provide public benefits, but there are costs to provide them services

​

Nonprofit Property Tax Exemption

28

29 of 35

  • Costs D.C. $400m + in forgone property taxes each year
    • 14% of total property tax collections

​

Nonprofit Property Tax Exemption

Source: 2022 DC Tax Facts. Table 5.

Note: “Miscellaneous” includes properties that qualify for exemption based on multiple categories, individual properties granted statutory exemptions (Brookings Institution, National Geographic Society,, YMCA, etc.), and international organizations (World Bank, etc.). “Other” includes cemeteries, low-income, and libraries; “other” excludes partially exempt properties and WMATA.

29

30 of 35

  • PILOTs are voluntary payments made by tax-exempt nonprofits as a substitute for property taxes

​

​

  • Boston received $35.5 million from 30 nonprofits (FY22)

​

Payments in Lieu of Taxes (PILOTs)

30

31 of 35

  • Arguments For PILOTs
    • Nonprofits should pay for public services they consume
    • Mismatch between benefits--costs of hosting nonprofits
      • Benefits broadly dispersed
      • Costs borne fully by city taxpayers

​

​

Pros and Cons of PILOTs

31

32 of 35

  • Arguments For PILOTs
    • Nonprofits should pay for public services they consume
    • Mismatch between benefits--costs of hosting nonprofits
      • Benefits broadly dispersed
      • Costs borne fully by city taxpayers

​

  • Arguments Against PILOTs
    • PILOTs can be contentious and ad hoc
    • PILOTs have limited revenue potential
      • 1.35% of property tax revenues in Boston
      • Less than 0.25% of general revenues in most cities

Pros and Cons of PILOTs

32

33 of 35

  • Arguments For PILOTs
    • Nonprofits should pay for public services they consume
    • Mismatch between benefits--costs of hosting nonprofits
      • Benefits broadly dispersed
      • Costs borne fully by city taxpayers

​

  • Arguments Against PILOTs
    • PILOTs can be contentious and ad hoc
    • PILOTs have limited revenue potential

​

  • PILOTs are a middle ground
    • Less than what nonprofits would owe if taxable, but valuable to city
    • Best practices can make PILOTs less contentious; more equitable and predictable (See 2016 policy brief – Nonprofit PILOTs)

​

Pros and Cons of PILOTs

33

34 of 35

  • Property tax has key strengths for local governments
    • Most stable and efficient tax; Immobile tax base

​

  • Design relief programs to address challenges
  • Avoid overly broad measures that cause excessive revenue losses and other unintended consequences

​

  • Reforms to make D.C.’s property tax more equitable:
    • Strengthen circuit breaker
    • Remove 2% assessment cap for seniors

​

  • Consider nonprofit PILOTs

​

Recap

34

35 of 35

  • Property tax has key strengths for local governments
    • Most stable and efficient tax; Immobile tax base

​

  • Design relief programs to address challenges
  • Avoid overly broad measures that cause excessive revenue losses and other unintended consequences

​

  • Reforms to make D.C.’s property tax more equitable:
    • Strengthen circuit breaker
    • Remove 2% assessment cap for seniors

​

  • Consider nonprofit PILOTs

​

Recap

35