22 Jul Why can’t I get this property tax break on my home?

Q. I’m inquiring about the property tax discount for veterans. Prior to 2015, I was eligible as a veteran received a $250 discount. In 2015, I entered into an agreement with my son and daughter. The home, which I’ve owned since 1979, was placed into an irrevocable living trust so I can continue to live there — it’s a life tenancy — while I pay all the expenses. I was told by my lawyer that with the transfer of the deed to my children, I would lose the veterans discount on my property taxes. But I’m still able to get the Homestead Rebate and the Senior Freeze with the life estate. Wouldn’t this apply to the veteran’s discount also?
— Veteran

A. Let’s go over the benefits available for veterans in New Jersey.

There are two tax benefits.

The first is a $250 reduction in your real estate taxes and the second is a $6,000 deduction on your New Jersey income taxes, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

To be eligible for the $250 property tax deduction, you must be living in your own house and pay real estate taxes, he said.

You said that your home was placed into an irrevocable living trust and you have a life tenancy so you can live in the house for the rest of your life.

“When you transferred your home into the trust, you transferred the ownership of the home to the trust,” Kiely said. “Legally, you do not own your home. Your trust owns it. Since the trust never served in the military, the $250 tax discount is gone.”

Kiely compared your life tenancy to a long-term rental lease. You have the right to live in the house as long as you fulfill certain obligations. If you ever become unable to fulfill those obligations, you right to live in the house terminates. If you had a lease on an apartment you would not be eligible for the $250 real estate discount because you are a tenant, not the owner, he said.

Kiely said there are some downsides to putting your home in a trust.

“You can never borrow against the equity in the house,” he said. “You can’t get a home equity loan and more importantly you can never get a reverse mortgage.

To me, this is a serious lifeline that you gave up.”

Then if the trust ever has to sell the house, it will have to pay federal and state taxes on all the appreciation the house has built up since it was acquired in 1979 — that’s 41 years of appreciation.

Finally, Kiely said, if you were to pass away while in the home, your children will not receive a step-up in basis on the home.

“If you owned the home and passed, your children would receive the house income tax free,” he said.

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This story was originally published on July 22, 2020.

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