| Date: | 10/22/2001 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Personal Income Tax
I. Introduction For tax years beginning on or after January 1, 2001, an owner or renter of a principal residence located in Massachusetts who is age 65 or older, at the close of the taxable year, may be eligible to claim a refundable credit against personal income taxes. Also known as the "circuit breaker credit," this credit is based upon the actual real estate taxes or rent paid by a taxpayer eligible to claim the credit. See G.L. c. 62, § 6(k), added by Section 80, 81 of chapter 127of the Acts of 1999.
II. Who May Claim the Credit
A. Renters
A Massachusetts taxpayer age 65 or older who rents his or her principal residence is eligible for the circuit breaker credit if the following conditions are met:
1. The taxpayer pays rent on property in Massachusetts under a good faith rental agreement, for the right of occupancy of the principal residence during the taxable year or for a portion of the taxable year.
2. The taxpayer lives in housing for which the landlord was required to pay real estate taxes for the taxable year and for which the taxpayer does not receive a federal or state rent subsidy.
3. For the tax year 2001, the taxpayer's "total income" does not exceed $41,000 for a single individual who is not the head of a household, $51,000 for a head of household, and $61,000 for a husband and wife filing a joint return. For subsequent tax years, the Department of Revenue ("Department") will adjust the "total income" thresholds to reflect inflation.(1) See G. L. c. 62, § 6(k)(4).
4. Married taxpayers must file a joint return. No credit will be allowed for a married individual unless a joint return is filed.
5. The taxpayer is not the dependent of another taxpayer. A taxpayer is not a dependent of another taxpayer if the taxpayer is not claimed as a dependent on another taxpayer's federal or state personal income tax return. See G.L. c. 62, § 3B(b)(3).
B. Homeowners
A Massachusetts taxpayer age 65 or older who owns his or her principal residence is eligible for the circuit breaker credit if the following conditions are met:
1. The taxpayer must own residential property in Massachusetts and occupy the property as his or her principal residence. If a residential property has more than one owner, other than a spouse, and any owner meets the criteria for claiming the circuit breaker credit, each such co-owner may claim the credit proportionate to the amount of total real estate tax payments made by each co-owner.
2. The taxpayer pays real estate taxes. Real estate taxes are taxes assessed, pursuant to G.L. c. 59, by local communities on a fiscal year basis. Generally, real estate taxes paid in a calendar or taxable year often reflect taxes assessed for two different fiscal years. If a community collects taxes quarterly, a taxpayer may have made four payments during a calendar year. These payments are billed as due on the following dates: February 1, May 1, August 1, and November 1. If a community collects taxes semi-annually, a taxpayer may have made two payments during the calendar year. The first payment is billed as due on May 1 and the second as due on November 1, or thirty days after it is mailed, if the bill is mailed after October 1.
3. For tax year 2001, the taxpayer's "total income" does not exceed $41,000 for a single filer; $51,000 for a head of household filer; or $61,000 for taxpayers married filing jointly. For subsequent tax years, the Department will adjust the "total income" thresholds to reflect inflation. See footnote 1.
4. Married taxpayers must file a joint return. No credit will be allowed for a married individual unless a joint return is filed.
5. The taxpayer is not the dependent of another taxpayer. A taxpayer is not a dependent of another taxpayer if the taxpayer is not claimed as a dependent on another taxpayer's federal or state personal income tax return. See G.L. c. 62, § 3B(b)(3).
6. For the tax year 2001, the assessed valuation, before the residential exemptions but after abatements, of the homeowner's principal residence may not exceed $412,000. For subsequent tax years, the Department will adjust the "assessed valuation" threshold to reflect inflation. See footnote 1. If the taxpayer owns more than one acre of land, only the assessed value of the principal residence, together with the land that immediately surrounds and is associated with that residence, not to exceed one acre, should be used in determining the eligibility of the taxpayer for the credit.
III. Definitions
For purposes of this TIR, the following definitions apply:
Principal Residence, The building or portion thereof, including a mobile home, owned or rented and actually occupied by the taxpayer as the taxpayer's primary dwelling during the taxable year and located within the Commonwealth, together with so much of the land surrounding it, not to exceed one acre, as is reasonably necessary to the use of the dwelling as a home. A residence may be a part of a multi-unit or multi-purpose building. Whether a property is a taxpayer's "principal residence" depends on the facts of each case and the intent of the taxpayer, but ordinarily the residence the taxpayer lives in most of the time is his or her principal residence. A credit is not allowed on more than one residence during the same time period, except in the case where a taxpayer has changed his or her principal residence during the tax year.
Total Income, A taxpayer's "total income" is a) the taxpayer's Massachusetts Part A, Part B and Part C adjusted gross income (AGI) as defined in G.L. c. 62, § 2 increased by various amounts that may have been excluded or subtracted when originally calculating the taxpayer's AGI minus b) certain exemptions claimed by the taxpayer. Amounts added back to AGI in computing total income include income from social security, retirement, pension or annuities, cash public assistance, tax-exempt interest and dividends, net capital losses, Part C losses, certain capital gains, income from a partnership or trust not otherwise included in the taxpayer's AGI, and gross receipts (e.g., return of capital or gifts) from any other source except the tax credit itself. The exemptions allowed which decrease the total income amount are those allowed for blindness, dependents and taxpayers who are at least age 65 by the end of the tax year.
IV. Calculation of the Credit
A. Renters
The credit is equal to the amount by which 25% of the rent actually paid by the taxpayer during the taxable year for the occupancy of the principal residence exceeds 10% of the taxpayer's total income for the taxable year, provided that such amount does not exceed the maximum credit amount. For tax year 2001, the maximum credit amount is $385. For subsequent tax years, the maximum credit amount is an amount equal to $750 multiplied by the cost-of-living adjustment. See footnote 1.
B. Homeowners
The credit is equal to the amount by which the taxpayer's property tax payments in the current tax year, (2) including water and sewer use charges paid to a municipality, but excluding any abatement or exemption granted, exceeds 10% of the taxpayer's total income, for the taxable year, provided that such amount does not exceed the maximum credit amount. For tax year 2001, the maximum credit amount is $385. For subsequent tax years, the maximum credit amount is an amount equal to $750 multiplied by the cost-of-living adjustment. See footnote 1.
C. Applying the Circuit Breaker Credit Against Income Tax Liability
1. In claiming the credit, all other credits available to the taxpayer under G.L. c. 62, § 6 (other than the earned income credit) and any tax payments made for the tax year are first applied against the tax liability before applying the credit. 2. If the application of the credit reduces the tax liability to zero and there is still credit remaining, the Department will treat such remainder as an overpayment and will pay the taxpayer, without interest, (3) the amount of such remainder. 3. Any person entitled to claim the circuit breaker credit but not otherwise required to file a personal income tax return may obtain the credit by filing a return and claiming a refund.
V. Additional Rules for Homeowners
A. Payments included in the computation of real estate taxes
1. Taxes paid pursuant to the Community Preservation Act, the Cape Cod Open Space Land Acquisition Program or paid to a tax-levying district are included in the computation of real estate taxes paid.
2. Taxpayers residing in communities that do not include water and sewer use charges in the property tax assessments may include 50% of the actual water and sewer use charges paid during the taxable year in the computation of real estate taxes paid.
B. Payments not included in the computation of real estate taxes
1. Interest charges assessed due to delinquent payments are not included in the computation of real estate taxes paid.
2. Exemptions granted by cities or towns to qualifying veterans, surviving spouses, blind persons and the elderly are not included in the computation of real estate taxes paid.
3. Abatements granted by local assessors or earned through the Senior Work Program are not included in the amount of real estate taxes paid for purposes of the credit.
4. Betterments or special assessments levied upon the property are not included in the computation of real estate taxes paid.
C. Multi-use or Multi-family Property
1. A taxpayer who owns a multiple-unit dwelling (a multifamily residence that includes the taxpayer's personal residence), may only claim the taxpayer's proportional share of the sewer and water use charges or taxes paid. For example, where a condominium association pays one sewer and water bill for multiple owners, each owner may only claim the proportional share of the use charges attributable to the taxpayer's condominium (e.g., the condominium owner's percentage interest in the undivided interest of common areas and facilities).
2. A taxpayer who owns a principal residence with a land area in excess of one acre or a multi-purpose building or land area, e.g., a storefront with an apartment up above, may only claim the taxpayer's proportional share of the real estate tax payments, including water and sewer use charges, which corresponds to the portion of the residence used and occupied as principal residence.
3. If a real estate tax bill does not separately list the valuation of the principal residence and the land by use, the taxpayer should contact the local city or town assessor for a breakdown of the real estate tax bill.
D. Principal Residence Held in Trust
1. If a taxpayer's principal residence is owned by a grantor trust in which the taxpayer is a trustee, Homeowner Rules in Part II, Part IV and Part V apply.
2. If a taxpayer's principal residence is owned by a grantor trust and the taxpayer is not a trustee, the Renter Rules in Part II and Part IV apply.
3. If a taxpayer's principal residence is owned by an irrevocable trust, the Renter Rules in Part II and Part IV apply, regardless of whether the taxpayer is a trustee.
VI. Credit Not Counted as Income
The circuit breaker credit will not be counted as income in determining eligibility or benefits under any other means-tested assistance program, including but not limited to all such cash, food, medical, housing, energy and educational assistance programs.
VII. Examples
1. A and B are Massachusetts residents who file a joint tax return. A is 71 and B is 64. Their principal residence is on a half-acre lot in Massachusetts and has an assessed value of $400,000. They paid $3,200 in real estate taxes on their principal residence, in addition to an interest charge of $100 for late payment. They also paid $300 in water and sewer use charges. A and B's adjusted gross income (AGI) for the year is $25,500. In addition, A received tax-free interest from a municipal bond of $5,200 that was not subject to tax in Massachusetts.
As a threshold matter, A and B are eligible for the circuit breaker credit since A's age is at least 65 years old, the assessed valuation of the principal residence does not exceed $412,000, and the couple's total income is $30,000 ($25,500 of AGI + $5,200 of tax-free interest - $700 for the age 65 exemption). In 2001, on these facts, the amount of the circuit breaker credit equals $350, calculated as follows:
Real estate taxes paid = $3,200 + (50% x $300) = $3,350
Less: 10% of total income = 10% x $30,000 = ($3,000)
Total: $ 350
2. Same facts as Example 1 above except A and B successfully challenge the assessed value, reducing it to $300,000. As a result, they receive a $800 abatement of real estate taxes. In 2001, on these facts, no circuit breaker credit is available since 10% of total income exceeds the amount of real estate taxes paid.
Real estate taxes paid = $3,200 + (50% x $300) - $800 = $2,550
Less: 10% of total income = 10% x $30,000 = ($3,000)
Total: $ 0
3. C rents a two-bedroom apartment for annual rent of $12,000 ($1,000/month). C is 66 years old. The amount of real estate taxes C is treated as having paid is $3,000 (25% x $12,000). C's adjusted gross income for the year is $21,000. In addition, C receives a pension of $25,000 that is not taxable in Massachusetts. C's total income for purposes of the credit is $45,300 ($46,000 - $700 for the age 65 exemption). For 2001, C is not eligible for the credit because C's total income exceeds total income threshold for single filers ($41,000).
4. Same facts as Example 3 above except C's annual rent is $14,400 ($1,200/month) and C's non-taxable pension income is $11,000. As a result, the amount of real estate taxes C is treated as having paid is $3,600 (25% x $14,400) and C's total income is $31,300. In 2001, on these facts, although the credit calculation equals $470, C's circuit breaker credit will be the maximum amount, $385.
Real estate taxes paid = $3,600 (25% x $14,400) = $3,600
Less: 10% of total income = 10% x $31,300 = ($3,130)
Total: $ 470
Sheila T. LeBlanc,
Senior Deputy Commissioner of Revenue
Revised issuance date: January 14, 2002
October 22, 2001
TIR 01-19