Idaho House Bill 243 may be the most far reaching measure introduced in this year’s Legislature. The bipartisan bill introduced by Boise Democratic Sen. Maryanne Jordan and Nampa Republican Rep. and Majority Caucus Chair John Vander Woude would reconfigure the Idaho property tax break that benefits most Idaho homeowners to accommodate rapidly rising real estate prices.
At issue is Idaho’s homeowner’s exemption. As currently configured, an owner-occupied residence has its property tax valuation reduced by 50%, up to $100,000. That shields substantial value from property taxes.
For instance, if a homeowner has a home worth $100,000, it will be taxed as if it were worth $50,000. For a property worth $300,000, the value exempted is capped at $100,000, ie. property taxes are calculated on $200,000 in value. If the tax rate is $1000 per $100,000 in value that would save the $100,000 property owner $500 and the $300,000 owner $1,000 each year.
The cap on the exemption used to move up and down based upon changes in home value. But, in 2016, the Legislature ended indexing and fixed the maximum value of the break at $100,000. The reason had to do with the structure of Idaho’s property tax base.
According to the Idaho State Tax Commission, in 2018 45.2% of Idaho’s property tax base was primary residences, with 22.5% consisting of non-owner occupied residences, and 24.1% commercial property.
When the homeowner’s exemption expands, the impact is to shift the property tax burden to other kinds of property, especially commercial and non-owner occupied residences. In essence the size of the break determines the share of the overall property tax paid by each type of property owner.
One key reason for the 2016 change was to prevent the rise in the share of the property tax paid by commercial and non-owner-occupied residential property. Their share had been boosted by indexing of the homeowner’s exemption.
What has changed since is a statewide run up in housing prices which have diminished the real value of the homeowner’s exemption by blowing past the $100,000 cap. January numbers from the Boise Regional REALTORS show median home sales in Ada County at $318,000. The median number is the middle sale, meaning that half are above that amount and half below. The equivalent number for Canyon County was $235,000. That means that the vast majority of homebuyers in those counties are running up against the $100,000 cap in the homeowner’s exemption. And, sales prices tend to track overall values.
Sen. Jordan was quoted by Betsy Russell of the Idaho Press: “When the exemption was capped, no one could have anticipated the incredible rise in taxable values. Now they have been blindsided by enormous tax bills they could not have seen coming.”
The same trend is manifest statewide. In February of 2019, the median price in Kootenai County was $284,820. Over here in Eastern Idaho, Bonneville County’s median price is crossing the $200,000 threshold while Jefferson County is already beyond it. More and more counties will see median prices over $200,000 indicating that most owners are capped on property tax relief.
What this means is that in much of Idaho, local homeowners are seeing the homeowner’s exemption decline in relative value as market values continue moving up.
The Jordan/Vander Woude bill will benefit those homeowners by removing the $100,000 cap and indexing the yearly cap based on the overall change in Idaho’s home prices. Over time, the impact would be to reduce property tax value subject to property taxes for more Idaho homeowners.
The beneficiaries would be hundreds of thousands of Idaho homeowners. Those harmed by that would be owners of commercial and non-owner-occupied residential properties.
Of all the items before the 2019 Legislature, none has a broader potential reach impacting more Idahoans than House Bill 243. It is currently before the House Revenue and Taxation Committee for a hearing.