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Senior Tax Breaks: Boon or Ticking Bomb?

By Harry S. Margolis

As in many states, towns in Massachusetts may allow low-income seniors to defer real estate taxes until their homes are sold or after they die. The towns may charge interest of up to 8% interest on these unpaid taxes, which can compound year after year. While some towns that offer this benefit charge no or low interest, three out of four charge the maximum of 8% per year. This can be a big surprise when the children ultimately inherits property that has been gutted in value.

That happened in a case reported in 2018 in The Boston Globe. When Frances Arntz died in 2017 at age 104, her children were surprised to learn that she owed $50,000 in taxes plus $70,000 in interest on her house in Sharon. They had been aware of the taxes due, but not the interest. At 8%, the past due charges were growing at almost $10,000, not to mention the current taxes that were continuing to accrue.

Pondering the logic behind this loan

One could argue that the tax deferral from the town was essentially a loan to Mrs. Arntz and that the other town taxpayers shouldn’t be making an interest-free loan. But 8% is a rather high rate of interest in our current low-interest rate environment. One could equally argue that the town should not be profiting off the financial straights of its oldest residents. It’s likely that the 8% limit on tax deferral interest rates was enacted when interest rates were higher. It may be more fair to charge a rate that reflects the true cost to the town of the deferred taxes—what it would cost the town to borrow the money.

The Arntz case is probably an outlier since few homeowners make it to age 104 and have that many years of deferred taxes and compounding interest. But it’s a wake up call for seniors and their families. When taking advantage of a senior homeowner’s tax deferral program, make sure you know the cost of the deferral and determine whether you would be better off finding the necessary funds elsewhere, if other options are available.


Related Article:

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