By Andrew J. DeMaio
November 12, 2015
The New Jersey “Senior Freeze” homestead property tax reimbursement program provides valuable property tax relief to those who qualify. Eligible homeowners jealously guard their right to the benefit. Sometimes they go to ill-considered extremes, a recent New Jersey Tax Court opinion illustrates.
The Senior Freeze program applies to disabled or over-65 homeowners who have lived in New Jersey for at least ten years and have owned and lived in their current home for at least three years. The property tax burden of eligible homeowners is frozen at the amount of tax payable in the first year of eligibility (the “base year”). For subsequent years, the State reimburses to the homeowner the difference between the base year property tax and the tax imposed by the municipality for the current year.
To qualify, homeowners must meet stringent income limitations. A taxpayer with income greater than the current-year limitation ($85,553 in 2014) loses his or her eligibility to participate in the Senior Freeze program for a period of two years. If the homeowner qualifies in subsequent years, the base year is reset to the amount of property tax for the year of renewed eligibility.
An additional limit was imposed for 2014. Because of insufficient appropriations in the annual State budget, an applicant must have income of less than $70,000 to receive a reimbursement for 2014. A homeowner with income between $70,000 and $85,553 received no reimbursement for 2014, but retained eligibility for future reimbursements, with no resetting of the base year.
For purposes of the Senior Freeze program, the term “income” includes money received by inheritance, even though inheritances are not subject to federal or state income tax.
For tax years prior to 2014, Joseph Burns qualified for the Senior Freeze program. The base year taxes on his Cherry Hill home were $5,562.
In 2014, Burns’ sister, a California resident, died. Burns was entitled to inherit $90,000 from her estate and revocable trust. After initially expressing some reluctance to accept the inheritance, he received the $90,000 distribution and deposited it to his checking account on December 26, 2014.
In early 2015, Burns filed his application for the Senior Freeze program. He noticed a line for the reporting of income from inheritances. As required by the instructions, he reported the $90,000 he had received from his sister’s estate.
At this point, Burns was aware that the receipt of the inheritance would disqualify him for the Senior Freeze reimbursement. However, according to the Tax Court’s opinion, he “formed the impression that if in 2015 he gave away the $90,000 he received from his sister’s estate, the inheritance would no longer be considered income to him for 2014.” He set out to do so.
Burns wrote checks to relatives and to caregivers employed by the medical facility where his sister was treated. Some but not all of the recipients were beneficiaries under his sister’s will and trust. Burns didn’t give away the entire inheritance; he held back $2,000 or $3,000 in case he encountered unanticipated expenses related to his sister.
The Division of Taxation denied Burns’ 2014 reimbursement application and advised him that he would be ineligible for at least two future years. He challenged the determination in Tax Court.
The Tax Court upheld the Division’s determination. According to the court, “[t]he fact that [Burns] elected to give most of those funds away in 2015 does not erase his receipt of the money in 2014.” The court had little sympathy for Burns’ contention that, having given away the inheritance, he now has no funds to pay the increased property tax that he will be obligated to pay for years into the future as a result of the resetting of his base year. According to Tax Court Presiding Judge Patrick DeAlmeida, “if [Burns] had held on to the $90,000 [he] would have been able to pay the entire local property tax bill on his property, not just the lost reimbursement, for at least 11 years, and probably longer.”
The Tax Court noted that the result might have been different if Burns had disclaimed the inheritance rather than giving it away. Under the laws of both New Jersey and California, if Burns had disclaimed the $90,000, those funds would have passed as if he had died before his sister. However, once a beneficiary has accepted and received an inheritance, he may not disclaim it.