Councilor would let longtime non-rich residents over 55 defer property taxes

Councilor Bill Linehan (South Boston, South End, Chinatown) tomorrow asks the City Council to consider a proposal that would let people over 55 who have lived in their homes at least ten years defer payment of their city property tax until they sell the property or die.

In his request for a hearing on the matter, Linehan says the measure would let longtime residents stay in their homes even as their property taxes skyrocket due to the effect of the well off snapping up all the properties around them at ever escalating prices.

The measure, which would require approval by the state legislature, would let homeowners accumulate up to 50% of the assessed value of their homes in deferred taxes. The taxes - plus 4% interest - would become due upon the sale or transfer of the house or the death of the homeowner.

In addition to the age and length-of-stay requirements, the proposal would also limit the deferral program to people who meet income requirements set by the state.

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Local governments did this

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Local governments did this all up the coast of Maine where families without a lot of expendable income found themselves living in very valuable homes with high corresponding real estate taxes.

It's a great idea.

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Implementation is the issue

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I don't have any faith that this would be implemented in a workable way if Linehan is involved.

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This is the downside of speculation fever.

Old people get creamed by the property tax hikes for homes they bought for 6 grand in 1965 that have now ballooned in value to a point where it drains their income until they bail, a kind of economic cleansing effect.

It has been rippling through the system long enough to make odd income bracket mono-cultures of places where it takes root.

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But 55 year olds?

Seriously?

I could see what you are saying if you are talking about a 75 year old - but a 55 year old isn't someone who bought a house for sixty grand in 1965 ... a 55 year old would have been six years old in 1965.

I also seriously wonder whether the whole "owned for at least 10 years" would hold up in court, either - especially since it would screw over the sensible elders like my MIL who already downsized to a smaller property.

This isn't tax relief. This is blatant pandering to an entrenched constituency.

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Yeah 55 is a bit young.

I'm more interested in the general concept than the age range. With luck I'll get through life without owning property and if it's an option... Fitchburg!!!

A Nepali friend moved out there and is liking it. Mid State Trail, Wachusett, minimal asset inflation and so on.

I should have my eastern Mass stuff done by then and the only thing keeping me is free flops and billable hours.

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Considering the taxes are

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Considering the taxes are deferred, not forgiven, I don't see what's wrong with it. It allows people enjoy their home when a neighborhood changes and the economy doesn't necessarily value them as highly anymore.

Solutions such as these that encourage ownership are far better than senior rent control or the other inefficiencies they rely on in San Francisco. Boston is certainly not responding perfectly to the skyrocketing cost of housing, but ideas like this are far better than what is happening in Manhatten or SF.

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Anyone who bought a nice

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Anyone who bought a nice sized 3 bedroom in s boston in 2000, let alone the 80s, probably lived comfortably on a 65k/ year income. Paying 5k/year in taxes as the approach 55 and, in many cases are phased out of the work force, is truly a burden.

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so - basically, if I do this

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so - basically, if I do this - and my child inherits my property, they owe the city half my property's value + interest? doesn't this seem more like an incentive for poorer families to sell property?

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Would that be a bad thing?

If you are living in a property that you can barely hold on to, and that may not meet your needs (and may need extensive renovations), isn't it possible that selling now and using the money for a higher standard of living could be a better option?

Also, consider this: liens make property difficult to sell. If the purchase money has to go to clear a lien, many buyers will walk on that due to the delays. Unless you have the cash to clear out the back taxes up front, it might make it hard to sell the home or result in discounted pricing for the headaches (and limit you to cash buyers).

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I'm torn about this.

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I guess the question I have is if the city property tax coffers are lessened due to this tax deferment, which it sounds like they would be, who or whom or what is going to make up the loss in tax revenues to the city?

Say the person who owns the home, stays in the home and lives to be 85, that is 30 years of tax deferments, a sizable chunk of revenue for the city.

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I imagine some financial

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I imagine some financial wizardry could make up for some part of the gap because the deferred payments would be collateralized debt that can be auctioned off to the highest bidder.

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Unintended Consequences

This is a terrible idea for the city and for homeowners. The city would automatically lose revenue from this which either means the city will have to:

1.) Raise taxes on commercial and residential owners
2.) Cut the city's budget (sorry no pay raise for councilors)

On the real estate market side, someone will have to pay those deferred tax payments once the deed is transferred. If I were buying a house with deferred tax payments accumulating for 20-30 years, I'd say hell no. The same would be true if my parents passed the house down to me. Some families can’t absorb those deferred payments. The ones able to take those costs are most likely going to be investors.

This won’t benefit the other neighborhoods of Mattapan, Hyde Park, and parts of Dorchester either down the line where the market has picked up but not as high or fast as South Boston. Just imagine when we hit the next downward real estate cycle years down the line, how will deferment help the market?

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You wouldn't care

On the real estate market side, someone will have to pay those deferred tax payments once the deed is transferred. If I were buying a house with deferred tax payments accumulating for 20-30 years, I'd say hell no.

The liens get taken out of the owners proceeds. The price of the house would be the same for the buyer compared to a house without liens but the seller of the property would only get the difference once the liens had been paid. The real question is what happens if the market drops or something happens to the house (fire, flood) which greatly lowers it's value.

I like the idea. If people are complaining about yuppies pushing long time owners out this is a great way of stopping this problem. But what you'll see is anger from those same elderly owners that when they decide to cash in on their house to move to Arizona it's only worth 75% of what the neighbors are effectively getting. Same goes with kids -- the inheritance isn't as great as they were expecting. But if the long time owners just want to stay in their house without paying a premium for the changing area this lets them.

I like the idea but would would move the age floor up to at least SS retirement age.

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Not that simple

My brother and I kicked in cash to clear a small mortgage on our parents' home. If we had to sell the house in probate to clear the lien on the house from that mortgage, it would have been much harder to sell and would have sold at a much lower price, and the buyer would have to be a cash buyer because the property would not be eligible for a mortgage.

It isn't as simple as just selling the home and paying the lien. The order in which these things happen has a strong impact on how much the home will sell for and who is able to buy it.

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These are always tough issues

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Kicking grandma out of her home because she can't afford the taxes is not a popular nor nice thing to do. At the same time, these types of schemes always lead to perverse economic incentives.

This is really just a scheme to shift tax burden around and benefits basically middle class folks who own. I'm not an expert but there are probably better ways to do that, and there are probably more deserving populations out there as well (e.g., people who can't afford a home in the first place).

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My grandmother did this in dover

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She lived in dover for 69 years before she passed about a year ago tax free after my grandfather died for about 20 years. Challenge is most elderly residents end up on medicare and have a lien placed on there home to afford to go into assisted living or a nursing home. You'd have to have enough money to pay off the Medicare lien plus taxes with interest which can easily exceed the value of the property even without a mortgage.

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Proposition 13

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California got Proposition 13, a 'think of grandma' measure which has basically destroyed the state. Prop 13 fixes tax rates at time of purchase. This leads to $100m properties bought in the 1940s paying $7k/year in taxes. I can see how this could easily get fouled up to be just another generational wealth transfer.

Tax deferrals are a little bit smarter, but I'd really like to see the interest rate pegged to inflation rather than 4%. Otherwise you'll see people engaging in interest rate arbitrage at the expense of the city.

I doubt there would be any impact on the City's day to day cash flow. Sell bonds to cover the shortfall and fund the bond debt when people sell their houses. Of course, if the bond market swings we could easily end up underwater.

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They should be paying SOMETHING.

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If older people are able to pay their taxes now, instead of deferring all their taxes, have them continue to pay the current amount (or maybe the amount they paid 10 years ago) with no future increases. That keeps money rolling into the city and keeps the owner from burning through as much of the future value of the house.

Requiring a means test (which they said they would do) is a key feature. Also, raising the age limit to at least 60 or 62 is a no-brainer.

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This basically works like a

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This basically works like a reverse mortgage would, but with a lower than market rate (and no closing costs). I'm not usually fond of the govt getting into the loan business, but something like this makes sense and in theory is low risk to the city as they'd have a lien on the property upon disposition.

I've seen instances where property taxes are frozen based upon age/income. That could be done here where the owner pays a fixed amount and the excess is deferred.

Age 55 does seem young, but I'm not sure what the "right' age should be.

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And he wants a raise?

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What a buffoon - this now appears to just be an attempt to hook up younger constituents with the benefits the elderly already have.

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How many impacted?

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I think the biggest question is how many people would be impacted by this and what would that remove from the tax coffers of Boston? This is kind of meaningless until we know what the income cut off is.

If we're talking about a few hundred elderly folks who are getting by on social security, then fine, but with the low age limit and the lack of more info, I can just imagine this getting gamed like disability gets gamed by public sector employees.

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The devil is in the details

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In addition to the age and length-of-stay requirements, the proposal would also limit the deferral program to people who meet income requirements set by the state.

So what classifies as "non-rich", that sounds a bit of vagueness where there should really be a more precise number. I can see a lot of people who are plenty well off shirking taxes if that definition is not set accordingly. I'm with the gist of the proposal - that longtime residents shouldn't be squeezed so acutely because their neighborhoods gentrify - but, frankly, city residents should pay some property tax (even if reduced). Just because the value of their home has skyrocketed does not, in and of itself, relieve them of their civic duty. Obviously the proposal will have to amended and hopefully Mass will look at states that have similar policies to better gauge their effect/

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So after asking taxpayers to

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So after asking taxpayers to cough up a huge raise for himself, he's trying to pass a measure to reduce the revenue that the city takes in? So he's a tax-cut and spend conservative, what kind of math is that? These measures will increase the cities budget while reducing the revenue.

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why not tie it to affordability?

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Why not propose some form of broad-based property tax relief that would be based on affordable housing guidelines? For example, if your housing costs (mortgage+taxes+insurance) exceed 30% of your income, you would be eligible to defer tax payments for a portion owed that would reduce your payment to 30%. Such a proposal would be easy to understand, would not cleave discussion along interest group lines, and would provide measured, immediate relief to those homeowners who need it the most.

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why not fix the real problem

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As long as you're paying someone for the privilege of living in your home, you're renting. We should abolish the property tax and then grandma can keep her house.

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