Seniors often live on a fixed income, and they can face financial trouble when their property taxes rise. Even if their home is fully paid for, senior homeowners still must pay for their homeowners insurance and property taxes--which can be a burden.
To relieve this financial strain, many state and local governments offer property tax exemptions for seniors (or will freeze their property taxes) so they don't face increasing tax bills.
The rules for senior homeowners vary, but research done by SeniorDiscounts.com found that most states require the property to be the senior's principal residence.
Some require the owner to have lived in the house for a minimum number of years. The average age requirement is 61, with some jurisdictions specifying that the owner be 60 or 65. In some locations there are also income limitations.
For example, in Michigan, homeowners who own and occupy their entire property as a principal residence can claim a 100% personal residence exemption (PRE), says Joseph J. Dadich, an author, attorney and CPA who is principal of Dadich & Associates in Troy, MI.
"The PRE exempts a principal residence from the tax levied by a local school district for school operating purposes," Dadich notes.
In addition, Michigan offers a Homestead Property Tax Credit for low-income individuals.
Another example is Washington, D.C., where seniors--age 65 and older who own at least 50% of the property in which they live--can file for a 50% reduction in property taxes, provided they meet income limitations.
The ability to take advantage of property tax relief programs after a senior decides to transfer ownership of their home to their children (or after the children inherit a property) depends on state and local program restrictions.
In most places, the children would have to live in the house in order to claim a property tax exemption or reduction for themselves. However, if their parents remain in the home, in some cases the parents would be eligible for a full or partial property tax exemption depending on local rules.
"If a senior decides to make the transfer of their home to their children gradual, and they choose to share ownership, owning less than 100% of their house and sharing possession with the kids doesn't automatically disallow the PRE in Michigan," says Dadich. "The parents can still claim the exemption as long is that is still their primary residence. If the kids inherit 100% of the house, then the only way they would qualify for the personal residence exemption is if they own and occupy the property."
Dadich pointed out that seniors must occupy their home more than six months of the year to qualify for an exemption.
"This includes those seniors who reside in the colder states, the proverbial 'snowbirds' who may have another house located in a warm-weather state," he adds. "Whatever home they are living in for more than six months of the year should be the home they are taking the tax exemption on."
That six months' requirement applies to children who inherit their parents' home, too.
"When these questions arise and you are faced with difficult decisions, it is best to consult a tax advisor to help you find your way," Dadich advises.
To find out about property tax relief available in your jurisdiction, check your property tax bill and your state office of tax and revenue.
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