New Homestead Market Value Exclusion (HMVE) and Property Taxes
New Homestead Exclusion & Valuation Exclusion Disclosure
by Christine Berger, Vice President, Governmental Relations, MN Association of Realtors

MNAR has received a few questions from members about the new Homestead Market Value Exclusion (HMVE) that was created in the 2011 legislative session and if or how it relates to the Valuation Exclusion Disclosure on page five of the Sellers Property Disclosure Statement (SPDS).
The Valuation Exclusion Disclosure in the SPDS is required by Minnesota Statute § 273.11 subds. 16 and 18. The Valuation Exclusion deals with exclusions from market value due to home improvements made under the “This Old House” program, where the improvement was made before January 2, 2003. The exclusion in this instance does not transfer with the property and thus, needs to be disclosed.
The new HMVE is a recent change to how homestead property taxes are calculated. It replaces the Homestead Market Value Credit (HMVC). Under the old credit system, the credit lowered a homeowner’s property tax burden based on the value of their home. The state then reimbursed local governments for the lost amount of their levy (revenues) due to the credit. However, due to the state’s budget problems, it was rare that local governments were fully reimbursed by the state. Eliminating the credit and creating an exclusion removes the possibility of the state withholding funds and creates more stability for local governments.

The new program excludes a portion of the homeowner’s market value from the property tax calculation. The amount of value excluded is directly proportional to the credit the home received under the old law. The actual tax burden on homesteads could be lesser or greater depending upon the mix of properties in the taxing jurisdiction and the levy decisions made by local governments (for more information on the technical calculations, please see further below).

Therefore, the disclosure requirement in Minnesota Statute § 273.11 subds. 16 and 18 does not pertain to the new HMVE because the exclusion is determined every year as part of the homestead’s property tax calculation and is not directly connected to home improvements. Furthermore, the sole fact that a homestead has a HMVE does not mean that the property is subject to preferential property tax treatment. Other tax programs may apply to the property to give it preferential status.

Technical Calculations
Description: Under the old credit system, the credit amount would rapidly increase as a home value approached $76,000 with the maximum credit amount of $304. After $76,000 the credit would decrease until it was completely phased out with a home value of over $414,000. The new exclusion mimics this same scale as homes approaching $76,000 would have a rapidly increasing exclusion of value, with a home valued at $76,000 receiving a maximum exclusion of 40% of their home value from property tax calculations. The percentage then decreases and is phased out at homes valued over $414,000.