Elder Law Center

One Essex Street

Saugus, Massachusetts 01906

Telephone 781.233.4444   Fax 781.231.2222

October 13, 2005

HOUSE RICH, CASH POOR

          This past week I received a call from a reader asking me, what has happened to the real estate tax breaks for seniors promised by our politicians?

           Well, I wasn’t able to find any new legislation regarding real estate tax abatements or reductions for seniors who are house rich, cash poor. But I did find a report issued last month by our state auditor, Joe DeNucci. This report discusses the various abatements that seniors are eligible for and makes recommendations as to how the system can be improved.

           Massachusetts has a long history of helping seniors with the burden of real estate taxes.  Up until the approval of Proposition 2 1/2, property tax relief for seniors was mandatory and uniform, no matter where you lived. In the early 1980’s a new approach was approved by lawmakers.

           Under the current system, the state will reimburse cities and towns for a certain amount of abatements. Our local cities and towns can also adopt an additional 16 different options that affect who can receive aid and how much they receive. The only standard statewide program started in 1999 and is know as the senior circuit breaker credit.

           After having read Auditor DeNucci’s 57 page report, I have concluded that our current system is way too complicated. DeNucci states that “a senior who does not qualify for relief in one town could move to a neighboring town and qualify for a 60% tax break – as much as $1,750 off the average tax bill.” The other major problems with this current system are:

·        Over 14,400 fewer seniors received the two primary local property tax exemptions in fiscal 2004 than did 10 years earlier.

·        The original legislative intent was to have seniors able to defer 50% of their real estate tax bill, in 2004 the average deferral was 17%

·        By voting in local options, cities and towns have abated 3.9 million dollars of real estate tax bills without any payback from the state

·        Unintended results – 73 communities have received approximately $400,000 more from the state than they spent giving the subsidies and state reimbursement for one community is more than two times greater than it’s local expenditures, whereas an abutting municipality receives less than 1% of what it spends

So, the way it works is the cities and towns give seniors a tax break and the state reimburses the city/town an amount that could be more or less than the actual cost to the city or town. The actual reimbursement rate from the state to the cities and towns ranged from 382% to less than 1%. Here is a sample of a few communities in our neighborhood:

The report concludes with a recommendation that the current 16 local options be replaced with a single, standardized, state funded program that should be indexed for inflation. The Auditor did recommend that two parts of the current system stay in place.

The first of these is the option under Mass General Law Chapter 59, section 5K (section 5K) that allows anyone over the age of 60 to work off as much as $750 of their real estate tax bill. As of 2004, 153 communities had accepted section 5K, but only 129 communities had actually implemented this option. Last year 2,443 individuals age 60 and over had worked off $1,310,784 of their real estate tax obligations.

The other local option that the Auditor recommends to continue, subject to improvement, is known as clause 41A (Mass General Laws Chapter 59, section 5, clause 41A).  This clause allows taxpayers to stop paying real estate taxes and allow the city or town to place a lien upon the property for the unpaid taxes. For seniors who are unable to make ends meet, this allows them to forget about paying real estate taxes and use the money for something more important, like food and medicine. A major problem in using clause 41A is that the city or town must charge interest at 8%, the amount specified in the law. I don’t know about you, but my bank hasn’t been paying me 8% interest for a long time. The statute must be amended to provide for a more reasonable interest rate.

Overall, I like DeNucci’s report recommendations that provide that seniors should be able to get a 50% reduction in their real estate taxes and that the process should be taken over by the state. In 2004 this would have saved cities and towns over 4 million dollars that could have been spent on other worthy local concerns. If DeNucci’s recommendations are adopted by the legislature, the Commonwealth would have to come up with an additional 16 million dollars.

WHAT SHOULD I DO? – If you are at least 60 years old, you should go to your local assessor’s office and ask if you are eligible for any of the real estate tax reductions available. Some programs become available upon reaching age 60, others at age 65 and others at age 70. Your assessor’s office should be able to help you find the best program for you.

You could also call your legislators and ask them to keep you up to date on any legislation that comes from DeNucci’s report.

This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).

 Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds masters in accounting and a masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org

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