Tax reform has upended a long-time homeowner practice: Deducting the full amount of property tax paid annually when filing federal income taxes.
Even before the new tax law, which limits the deduction for all state and local taxes, including property taxes, to $10,000, seniors on a fixed income often struggled to remain in their home in the face of high property taxes.
That’s why, as of the end of 2017, 24 states had “property tax-deferral” programs in place to help seniors, notes Abby Walters of the Boston College Center for Retirement Research. The new tax law will likely increase the need for these programs, particularly for seniors in high tax areas, she notes.
These deferral plans typically allow eligible [some programs are open only to those with lower incomes], seniors to defer all or a portion of their property taxes each year, Walters explains. “The locality would place a lien on the home and the unpaid balance accrues with a simple interest charge.”
For instance, a senior who defers $5,000 annually for six years would owe $30,000 plus all interest charges when he leaves the home. “Often, the balance is paid by the proceeds of the sale of the home,” Walters says.
In some of the 24 states, deferral programs are available statewide, while in others each locality must adopt the program.
The 24 states are Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, North Caroline, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and Wyoming. More states may join this roster, Walters says.
Besides tax deferral plans, many states offer a deduction on the assessed value of a home to certain owners, like seniors and veterans.
“If seniors are struggling to pay their property taxes, they should contact their local Board of Assessors to lean about possible relief options,” Walters says.
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