Real Estate Tax Relief for Seniors?

Real Estate Tax Relief for Seniors?

Council reviews program to alleviate Real estate tax burden for town's older residents.

As land assessment values continue to dramatically increase, Herndon Town Council members are debating ways to alleviate the increasing financial burden on town residents — specifically older residents with a fixed income.

After repeated requests by senior residents and council member Steve Mitchell to look into a program that would assist residents 65 years and older, Mary Tuohy, director of finance, presented one preliminary approach to council during its March 7 work session.

Referring to a tax deferral program, the option would cater to residents 65 years and older who own property as their primary residence in town.

"I think it's important to look at it to help senior citizens who might take interest in it," Mitchell said. "It would help take the burden off the senior citizens who wanted to use it."

Through the program, senior citizens who live and own property within incorporated Herndon would be able to defer the town's Real estate tax for a set number of years. During that time the deferred taxes would gain interest, which is currently seven percent, Tuohy said.

In her proposal, Tuohy suggested residents pay a portion of the real estate tax each year, but that those taxes be capped.

If implemented, the enrolled residents would pay their taxes in full the first year of the program to establish a base rate. The following year the most they would have to pay would be 5 percent above what they paid the previous year.

Using fictitious numbers, Tuohy gave an example of someone paying $1,000 in town real estate taxes during 2007. This would be established as the person's base rate. The next year that person would pay the $1,000 amount, plus a 5 percent increase. That person's real estate taxes in 2008 would be $1,050 through the program. The other $50 would be deferred, Tuohy said.

Residents would be required to pay back the money either, upon sale of the property or when the allotted deferral time runs out. The current suggested time is 20 years, Tuohy said. Another option is once the resident dies, the money would come from their estate.

"Through the deferral program, if you live in your home for 25 or 30 years after you have turned 65, the question is, what happens to that money?" she said about the program's statute of limitations.

Because residents are living longer, if they are still in their homes at 85 or 90 years old — which is not uncommon — they would have to pay the deferred taxes while still alive. If they have passed away, their estate would pay the money back to the town.

"I WISH WE could wave a magic wand and create a tax deferral program," said Mayor Michael O'Reilly, "but it just implicates too many other issues."

Not entirely against a tax deferral program, O'Reilly raised concerns about the proposal due to a number of outside complications.

If an applicable resident owns their home outright, then this program would be beneficial, he said. But, because most residents are paying home mortgages to lenders, O'Reilly is worried the lenders would not want to work with the older Herndon residents because they would not be paying their property taxes regularly.

"The amount of equity in property can be reduced or lost because of the fluxes in the property values," he said. "Through this program, Real estate taxes would go ahead of a mortgage and that is what troubles me the most."

In her proposal, Tuohy suggested a program where residents would still pay a portion of the taxes with a cap. Mitchell said he would prefer a program that would defer all taxes, except for the base rate, for the allotted time.

Currently Tuohy does not think many members of Herndon's population would be eligible for this program. If implemented, she guessed the financial impact on the town would be roughly $58,000. She came to this number after referring to the 2000 U.S. Census and making a rough estimate as to how many people within the town are 65 years or older. She then guessed how many of them likely own their homes.

"I don't think we're talking about a dramatic impact to the town," said O'Reilly.

Tuohy also noted if a large number of residents are eligible and interested in the program and they live in townhouses, apartments or homes, the finance department would have to implement a new administrative program to accurately record the taxes being deferred. This could take time and become complicated, she said.

THE TOWN CURRENTLY offers a tax exemption program for residents that allows their taxes to be waived indefinitely.

Under this program there are strict requirements that must be met, which were revised by the council Dec. 13, 2005. These requirements include being at least 65 years old or permanently or totally disabled, receiving a maximum income of $72,000 a year and having a net combined finances of $340,000, not including the value of a home or up to one acre of land.

Through this exemption program, roughly $50,000 in town Real estate taxes are waived a year, Tuohy said.

Each year, when the council reviews its fiscal year budget, older residents — the majority being on a fixed income — come forward requesting a decrease in the town's real estate tax. Last year the council was able to make one of its largest tax rate reductions in 30 years, but residents are still expressing concerns because property values continue to rise.

"This is a statement from council saying we do understand what our older residents are going through and it's our way of trying to help them," said Mitchell. "If it helps five people, it helps five people."

The next step for the suggested program is to see how many older residents would be interested. Because of the possible mortgage complications as well as the small number of residents 65 years or older in town, O'Reilly suggested Tuohy survey residents to see how many would be interested in enrolling in the program, before moving forward.

"There is nothing in our real estate tax files or our land files that designates how old that resident is," Tuohy said about the complications of getting the word out to property owners.

If enough residents are interested, Tuohy will present that information to the council. Council members will then decide how or if the program should be implemented.

"It's always worthy of looking at additional tax programs certainly to assist people of modest means," said O'Reilly. "We just need to study it a little bit more. On paper it looks like a great deal, but it needs to be looked at further."