Homestead Rebate, Senior Freeze and taxes

Ask NJMoneyHelp

Photo: oleiah/morguefile.com

Q. I’m 69, a widow, and I collect Social Security, and when I file my federal taxes, I use Schedule A (Itemized Deductions). My income level allows me to qualify for the NJ Homestead Rebate and the Senior Freeze. I recently learned these are taxable as income. Is this right?
— Senior taxpayer

A. You’re correct.

The IRS requires that a taxpayer report the Homestead Rebate and Senior Freeze benefits as “Other Income,” and that can result in a higher tax liability.

Here’s why.

The calculations for items such as the taxability of Social Security benefits, medical expense deductions and miscellaneous deductions all use a percentage of income, said Steve Gallo, a certified public accountant with U.S. Financial Services in Fairfield.

He said the IRS reasoning is twofold.

First, Gallo said, your real estate taxes are based on the property value, not on the person who owns the home. The tax rate is established by the city, town or village where you live.

“Because you are a senior, the property taxes are not being lowered, but rather you are receiving a taxable benefit from the state,” Gallo said.

The second reason, which Gallo says it probably the most important, is that just because you own a home and pay real estate taxes does not mean you itemize deductions on your taxes.

“If you don’t itemize, then the option of netting the rebate against your deduction does not exist and therefore the income would go unreported,” Gallo said. “Although it seems unfair there is actually some logic behind the IRS regulations.”

Email your questions to moc.p1502956326leHye1502956326noMJN1502956326@ksA1502956326.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.