25 Mar How to treat ANCHOR and Senior Freeze on your tax return

Q. How is the Senior Freeze reflected on a federal tax return? What about ANCHOR? Are they taxable?
— Homeowner

A. It’s a great question.

And it’s a timely one.

The Senior Freeze program reimburses eligible senior citizens and disabled persons for property tax or mobile home park site fee increases on the principal residence, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

If you qualify for the reimbursement, it’s not taxable for federal income tax purposes, Papetti said.

But, he said, the amount will reduce the real estate tax deduction reported as an itemized deduction.

“Under the current tax law, the state and local taxes paid as well as property taxes paid are limited to $10,000, he said of the commonly called SALT.

ANCHOR and Senior Freeze payments are not taxable for New Jersey income tax purposes and should not be reported on the New Jersey income tax return, Papetti said.

He said information on the federal tax treatment of these payments, called “recoveries” by the IRS, can be found in IRS Publication 525.

In general, he said, the IRS follows the “Tax Benefit Rule” that states you must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit reduced your tax in the earlier year.

“The most common recoveries are refunds, rebates, and reimbursement of itemized deduction items such as property taxes,” he said, noting that if a taxpayer took a standard deduction instead of itemized deductions, the recovery does not impact the federal tax return.

According to the New Jersey Society of Certified Public Accountants, ANCHOR payments should reduce the real estate tax expense taken as an itemized deduction and not reported as income, he said.

Email your questions to .

This story was originally published in March 2024.

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.