Property tax breaks for seniors: what are they and how do they work?
Find out more about how property tax breaks for seniors can help you reduce your overall tax burden.
Summary
Property tax exemption reduces or eliminates property taxes for qualifying properties, individuals, and organizations.
Local tax laws specify these exemptions, and property tax exemption criteria differ between states and jurisdictions.
The total property tax revenue collected in the US in 2021 was $630.21 billion, over ten times the amount collected in 1977.
A financial advisor can advise whether you’re eligible for an exemption and provide professional advice to help you create the right tax strategy.
What is property tax?
Property tax is a local (state or municipal) tax on the value of real estate. The funds collected from property tax go toward funding local services and infrastructure, such as schools, roads, and public safety features.
Those liable for property tax include individuals and businesses, and property value is assessed annually by a local tax assessor based on the following criteria:
Property type: Residential, commercial, and industrial properties qualify for property tax, as well as some agricultural and vacant properties.
Property size: This can affect property tax indirectly. For example, larger properties and those with valuable features, structures, and amenities may have a higher assessed value, leading to a higher property tax liability.
The assessors' valuation may not equate to the property's market value; it is typically a percentage of it. The property's assessed value then incurs a tax calculated at the local property tax rate.
The tax rate is generally expressed as a percentage per $1,000 of the property's assessed value and is also known as the mill or millage rate.
You must know the property's assessed value and the local tax rate to calculate property tax. With these figures, you can calculate general property tax using the following formula:
Property Tax = Assessed Value x (Tax Rate / 100)
Here's an example calculation using the following values:
Property Value (Assessed) = $200,000
Tax Rate = 1.5%
Calculation:
Property Tax = $200,000 x (1.5 / 100)
Property Tax = $200,000 x 0.015 = $3,000
The formula is generalized, and each jurisdiction may employ a different calculation method.
The general formula also excludes special assessments and property tax exemptions.
What is a property tax exemption?
A property tax exemption reduces or eliminates property taxes for qualifying properties, individuals, and organizations. Local tax laws specify these exemptions.
Here are three common reasons for granting property tax exemptions:
Encouraging home ownership
Supporting charitable organizations
Fostering economic development
Who is eligible for property tax exemptions?
Local governments differ in their criteria for who qualifies for a property tax exemption.
Property owners and organizations seeking exemptions must apply with the local taxing authority and meet their specific requirements.
Below, we’ve outlined the common types of property tax exemptions, including property tax breaks for senior citizens:
Senior citizens: Property tax breaks for senior citizens are designed to assist older citizens in managing housing costs during retirement.
Veterans: Exemptions may vary according to military service or disability status.
Homestead: Aims to make ownership of a primary residence more affordable.
Charitable organizations: Offers support to non-profit organizations, e.g., schools, hospitals, and religious institutions.
Historic preservation: Encourages the preservation of historic landmarks and cultural heritage.
Agricultural: Supports and promotes the agricultural industry.
Low-income housing: Incentivizes the development of affordable housing options.
How can seniors claim property tax breaks?
Some seniors may be eligible for a property tax exemption, depending on their jurisdiction.
These property tax breaks for seniors will differ significantly between states and jurisdictions, so it is necessary to apply to local tax authorities.
However, some standard eligibility criteria for receiving elderly property tax credits may include:
Age requirement: The property tax break for senior citizens typically requires a minimum age of 65.
Homeownership status: Some jurisdictions may specify that the property tax break for senior citizens applies only to homeowners, not to renters.
Residency type and duration: The property should be the senior's legal primary residence to be eligible for tax breaks. Some programs may even impose additional requirements related to the length of residency.
Income limitations: Some property tax laws impose income limits. This means those with lower incomes are more likely to qualify for a property tax credit for seniors.
Assessed property value: Seniors with homes below a particular threshold may be eligible for a property tax exemption.
When preparing for the application process, seniors should ensure they have the required documents for their state and jurisdiction and be aware of the annual application deadline. Some states conveniently offer online application services, while others require in-person submissions.
Upon receiving the application forms, it is recommended that seniors seek the assistance of a financial advisor who will also help clarify the eligibility criteria, fill in the application, and guide them through the process.
Get expert financial advice
Property tax breaks for retirees reduce the tax burden on senior citizens, aiding them financially through their post-working years.
Senior citizens might qualify for a property tax break if they meet the eligibility criteria for their state and jurisdiction.
A financial advisor can help determine if you qualify for elderly property tax credits and guide you through the application process.
Unbiased can match you with an SEC-regulated financial advisor who can provide a registered advisor knowledgeable about local tax laws.
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