Q. I live in an apartment in an active 55-and-over community for which I pay monthly maintenance. I also claim property tax deductions on my return, but I have no deed. When the company sells the property. I will received back what I paid less any rehab costs for the apartment. It’s not a profit but a return of capital. Will my executor need to file a Form L-9(A)?
A. We’re glad to see you’re trying to plan ahead to make things easier for your survivors when you’re gone.
Most senior adult communities offer terms similar to yours, where the resident will receive back the purchase price less rehabilitation costs, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.
Papetti said the company operating the adult community provides a breakdown of the costs paid by the resident and part of the monthly fee paid is allocated to property tax. You can then claim that on your federal tax return as an itemized deduction and on your New Jersey tax return property tax deduction, he said.
“I was recently involved with a client who lived in an adult community and the contract provided for a refund of the `entrance fee’ paid less the refurbishing fee and ongoing monthly billing for up to 90 days once the keys are returned to the business office,” Papetti said. “If a new resident moves in before the 90-day term billing will cease upon the new resident occupying the unit.”
Papetti said you’re correct that upon your death, your estate will receive the net check of your purchase price/entrance fee less the refurbishing fee and any other charges as provided in the contract you signed to enter the adult community.
And importantly, your estate will not receive any gain if the price to purchase a residence in that adult community has increased, he said.
Papetti said Form L-9(A) – Affidavit for Real Property Tax Waiver(s): Resident Decedent – will not apply in your situation, Papetti said, as there is no deed to transfer because your estate is receiving only a refund check per the contract you signed.
Papetti said it’s important to remember that effective Jan. 1, 2018 New Jersey has suspended its estate tax so no Form IT-Estate is required to be filed regardless of the value of your estate.
But, he said, a New Jersey inheritance tax return – Form IT-R – may be required because there may be a state inheritance tax due if assets pass to other than Class A beneficiaries.
Here’s a look at who counts as what kind of beneficiary, and the tax rates they will face:
Class A includes a parent, grandparent, spouse, child of a decedent (includes legally adopted child), grandchild, great-grandchild, etc. of a decedent. It also includes a stepchild of a decedent (but does not include a step-grandchild or great-step grandchild) , and a mutually-acknowledged child. Also includes civil union partners (after Feb. 19, 2007 and domestic partners (after July 10, 2004).
Class C includes a brother or sister of a decedent, spouse or surviving spouse of a child of a decedent, civil union partner or surviving civil union partner (after Feb. 19, 2007) of a child of a decedent. These beneficiaries receive a $25,000 exemption and are taxed at 11 to 16 percent on the excess.
Class D is everyone else. No exemption is provided and they pay 15 percent on the first $700,000 and 16 percent on the excess.
Class E includes, but is not limited to, qualified charities, religious institutions, educational and medical institutions, non-profit benevolent or scientific institutions, The State of New Jersey or any of its political subdivisions.
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