Philadelphia’s Revised Homestead Exemption: Effects on Tax Revenue
The City of Philadelphia recently announced a planned increase in the Homestead Exemption from the current $80,000 level to $100,000. For owner-occupied homes, this means that for the purposes of property taxation, the first $100,000 of assessed value will be exempt. Homes that are valued at or below $100,000 will pay no property tax, whiles homes valued above $100,000 will pay taxes only on the value above $100,000. The City's current property tax rate is 1.44%, with the revenues split between the City’s General Fund and the School District of Philadelphia.
The Homestead Exemption has been increased substantially in the past few years, from $45k in 2020 to $80k in 2023 [1]. As a policy tool, the Homestead Exemption is designed to alleviate tax burden on low- and moderate-income homeowners as properties rise in value. According to ACS 5-year estimates, Philadelphia’s median home rose in value by 42% - from $151,500 to $215,500 - between 2017 and 2022, far outstripping any gains in average or median income. Given the steep rise in home prices, the City’s policy goal is to prevent low and moderate-income homeowners from losing their homes due to property tax foreclosure [2].
In this Leading Indicator, we examine data from the Office of Property Assessments, the City agency responsible for regularly assessing the values of all of the City’s roughly 750,000 properties, to determine the impact of the boost in the exemption on tax revenues. A few notes on the data: The data specifies which properties already receive the Homestead Exemption but does not name which additional properties are eligible. Thus, our analysis of the effects of the expanding Homestead Exemption is based only on homes that have already applied for and received the exemption. It is worth noting that only 237,000 properties currently receive the exemption, while ACS estimates suggest that there are about 344,000 owner-occupied housing units that should be eligible. Additionally, while the City has planned another round of assessments and valuations in the near future, the current data is based on assessments completed between 2021 and 2024, so our projected changes in tax revenue don’t reflect the most recent growth in home values.
What You Need to Know:
- Based on current recipients of the Homestead Exemption and the most recent assessments for those homes, expanding the exemption from $80k to $100k will increase the number of completely untaxed properties by 60%.
- The new exemption level will increase the total untaxed property value from $18.5 billion to $22.7 billion, a 23% increase.
- While 11% of Philadelphia’s total property value is untaxed due to the exemption, the proportion of untaxed property value by ZIP code ranges from 0%–30%.
Untaxed vs. Taxable Property
Figures 1 and 2 illustrate how the revised Homestead Exemption will affect the quantity and value of taxable properties. Figure 1 shows that under the previous exemption level, 22,407 or 3.8% of properties were completely tax-free, while 35,952 or 6.2% will be tax-free under the revised exemption.
Figure 1:
Source: City of Philadelphia Office of Property Assessment
However, since the exemption serves to reduce taxable value for any owner-occupied home, the revised exemption both increases the number of homes that are completely tax free and reduces tax revenue from any homeowner that registers for the exemption. Note that approximately 69% of owner-occupied homes currently receive the exemption, so this figure doesn’t capture the potential change in revenue if all eligible owners registered.
Figure 2 illustrates the percentage of total property value that is tax-free under the previous and revised exemption, based on properties that already receive the exemption. By expanding the exemption to $100k, the City will forego revenue from $22.7 billion of property value, 23% more untaxed property value than under the previous exemption level. At the current millage rate of 1.3998%, that equates to $317.8 million in revenue – of which the City’s General Fund gets 0.6159% ($139.8M) and the School District gets 0.7839% ($177.9M).
Figure 2:
Source: City of Philadelphia Office of Property Assessment
Exempt Properties by Neighborhood
While a reduction in taxable property value means a reduction in property tax revenue for the City, untaxed value varies by neighborhood. Figure 3 illustrates the percentage of total property value that is untaxed, aggregated on the ZIP code-level.
The variation in the untaxed property value across neighborhoods is a representation of both residential and non-residential property values. Neighborhoods with a particularly low percentage of exempt property value may have especially high-valued homes, a large presence of non-exempt commercial buildings, or both.
The neighborhoods with the highest percentage of untaxed property value are clustered in far North Philadelphia along with select ZIP codes in West and Southwest Philadelphia. Neighborhoods with a low percentage of untaxed property value are clustered in Center City, where both home values and non-residential real estate prices are high.
Figure 3:
Source: City of Philadelphia Office of Property Assessment
Conclusion
This analysis illustrates how the changing Homestead Exemption may affect property tax revenue and its geographic distribution. However, it’s important to note that it is not representative of the true revenue changes in several ways. First, the expanded exemption comes as a preemptive measure to address the expected steep hike in values from an upcoming assessment. This analysis is based on existing valuations and thus doesn’t capture the true updated market value for all properties. If a property value goes up by $20k exactly, the increased exemption from $80k to $100k will leave the homeowner with the same taxable value. However, if the assessed value of a home goes up by more than $20k, the increased exemption will not make up for the difference in value, leaving the homeowner with higher property taxes than before.
Second, the analysis is based only on existing records of homes that receive the Homestead Exemption; at present only 69% of owner-occupied homes have applied. It’s feasible to imagine that as property values rise and the allotted exemption increases along with them, more homeowners may opt to take advantage of the program.
Sources
[1] https://www.pewtrusts.org/en/research-and-analysis/reports/2022/09/how-…
[2] https://www.inquirer.com/politics/philadelphia/philadelphia-property-ta…