Author: Municipal Finance Legal Guidance
This month's Ask DLS features frequently asked questions about property tax deferrals for qualifying seniors. For more information, please see IGR-2008-208. Please let us know if you have other areas of interest or send a question to dls_alerts@dor.state.ma.us. We would like to hear from you.
Are seniors able to defer their property taxes?
Yes. G.L. c. 59, § 5(41A) allows seniors 65 or older who meet certain income and other requirements to defer all or part of their property taxes.
What are the qualifications for deferral?
Clause 41A deferral status is determined as of July 1. Any eligibility requirements for the deferral must be met as of that date. An applicant must be 65 years of age as of July 1st. An applicant must be a natural person who owns the property on July 1 and has owned that property or another property in Massachusetts as a domicile for five years. The five years do not have to be consecutive. Ownership of any domicile in Massachusetts qualifies. The applicant may be the sole owner or may own jointly with a spouse or other natural persons. If the applicant has co-owners, only the applicant must meet the current and durational domiciliary requirements. The applicant must occupy the property as his or her domicile on July 1 and must have been domiciled in Massachusetts for the preceding ten years.
Additionally, the gross receipts of the applicant and applicant’s spouse, if married, for the previous calendar year cannot be more than $20,000. However, there is a local option, that, if accepted, changes the maximum income limit to the amount established by G.L. c. 62, § 6(k) for the “circuit breaker” state income tax credit for single seniors who are not heads of households. That limit is adjusted annually by the Commissioner of Revenue based on changes in the cost of living.
A taxpayer who is deferring taxes can continue to defer taxes each year provided the total amount of taxes and interest deferred does not exceed fifty percent of the taxpayer’s proportional share of the parcel’s full and fair cash value.
How does a municipality increase the gross receipts requirements for applicants?
The new limit mentioned above may apply to taxes deferred for any fiscal year that begins after the vote becomes effective and until a new vote is taken establishing a different limit. The vote to increase the gross receipts requirement is made by the community’s legislative body which is town meeting or town council in towns, and city council with approval of the mayor in cities.
What constitutes a gross receipt?
Gross receipts mean income from all sources and is broader than taxable income for federal or state income tax purposes. It includes wages, salaries, bonuses, commissions, public and private pensions, social security, alimony, child support, lottery winnings, interest and dividend income, capital gains, life insurance proceeds, net income from business or rental property after deduction of related business expenses and losses, public assistance, disability payments, unemployment compensation, workman’s compensation, regular cash or financial contributions or gifts from family or other persons outside the household, and any other income. Ordinary business expenses or losses may be deducted, but not personal or family expenses, when computing gross receipts.
What steps must be taken if a deferral is granted?
In the first year a Clause 41A deferral is granted, the taxpayer must enter into a tax deferral and recovery agreement with the assessors. (State Tax Form 97-1). All co-owners and mortgagees must also sign the agreement for the deferral to take effect. This includes all remaindermen if the applicant holds a life estate and all co-trustees if the property is held in trust. The agreement will also cover taxes for any subsequent fiscal years if the taxpayer applies and qualifies for a deferral in those years. Assessors must record a statement (State Tax Form 97-2) that they entered into a Clause 41A recovery and deferral agreement with the taxpayer at the Registry of Deeds. The recorded statement constitutes a lien on the property to secure repayment of the deferred taxes and interest. The lien has priority over any prior or subsequent encumbrances on the property, except a recorded reverse mortgage that is not a shared appreciation instrument.
How is the interest on deferred taxes calculated?
Interest on deferred taxes accrues at eight percent per annum, unless a lower rate has been locally adopted by the municipality’s legislative body. If the property is transferred or the taxpayer dies before the account is paid, all taxes and interest deferred then accrues from that moment in time at the tax title interest rate provided in G.L. c. 60, § 62. The taxpayer may pay the deferral at any time in order to clear title on the property. The interest calculation on partial payments is the same as a payoff. Beginning with the oldest year, the payment is applied in this order: (1) accrued interest for each year, (2) costs and (3) taxes for each year. Interest on any future payoff is then calculated from the date of the partial payment.
A recent change in law that went into effect November 1, 2024 amended G.L. c. 60, § 65 and extends the waiting period to 12 months to file a petition to foreclose. Does this impact a tax deferral?
No, exceptions include where a taxpayer has a tax deferral. A petition may still be filed six months after the property is sold or the taxpayer dies. G.L. c. 59, § 5, Clauses 41A and 18A.
What if there is a surviving spouse?
If the taxpayer dies, the surviving spouse may continue the deferral. To do so, the spouse must apply and qualify for the deferral in subsequent years and enter into a new deferral agreement. Any taxes deferred under the new agreement, together with interest, will be added to the amount already deferred so long as the 50 percent limit has not been reached.
What events would trigger a repayment obligation?
In Hurley v. Board of Assessors of Quincy, the ATB ruled that reverse mortgage permission is only required when entering into an agreement in the first year of the deferral. If the reverse mortgage is subsequent to the agreement, permission is not required for the granting of the deferral per the statute. This case also emphasizes that there are only two events that trigger the repayment obligation under 41A, which are the sale of the subject property or the passing of the taxpayer(s).
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| Date published: | January 2, 2025 |
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