Senior Citizen Property Tax Deferral Program
December 2005
From time to time, assessors respond to inquiries regarding what kind of tax programs or exemptions are available to senior citizen property owners. Most of the questions focus on whether or not taxes or property values are subject to a freeze exemption. Other questions center on the availability of programs that may give them an additional tax credit or refund. The sole answer to these queries is that Minnesota's property tax system does not provide for a senior citizen exemption or an assessment freeze. However, the state does promote a senior citizen property tax deferral program that is designed to help qualified property owners who are having difficulty paying their taxes. It limits the maximum amount of property tax to be paid and ensures that it does not change during the participatory period. The balance of the tax due is deferred and becomes payable at a later time, while the deferred tax is paid by the state to the county.
What is the senior citizen property tax deferral program and how does it work?
The senior citizen property tax deferral program is somewhat akin to a loan because the state pays the deferred tax to the county. In turn, the state attaches a lien to the property, maintains an account on the total amount of deferred taxes, and charges a floating rate of interest, not to exceed five percent, which is also deferred. The annual tax paid by the owner is restricted to three percent of the total household income based upon the income earned in the calendar year prior to the first year of enrollment in the program. This tax amount serves as a basis for how much must be paid annually for as long as the property remains in the program. The deferred tax is the difference between the total tax levied against the property and the tax amount paid by the owner. The summation of the total deferred taxes along with the interest that has accrued is what must be paid back to the state when participation in the program ends.
What criteria must be met to qualify for enrollment in the program?
In order to qualify for this program, all of the ensuing requirements must be met: (1) the property must be owned and occupied by the owner(s) as a homestead and the owner(s) must be 65 years of age or older; (2) the total household income cannot be more than $60,000 in the year preceding the year before enrollment; (3) the property must have been owned and occupied by the owner or at least one of the owners if there is more than one for at least fifteen years prior to enrollment; (4) there cannot be any federal or state tax liens or judgment liens filed against the property; and (5) the total unpaid balances of debts secured by mortgages and other liens on the property (i.e. deferred taxes and interest under this program, special assessments, and property taxes) cannot exceed seventy-five percent of the property's estimated market value as rendered by the assessor.
When does the deferred tax have to be paid back to the state?
Participation in the program ends and the deferral expires when any one of the following situations occurs: (1) the property is either sold or transferred; (2) the owner(s) die(s); (3) notification is put in writing and sent to the Department of Revenue stating the intent of the owner(s) to withdraw from the program and have the deferral stop; and (4) the property no longer qualifies for the homestead tax classification. Full payment is due within ninety days when either one of the first two scenarios transpires, while one year is the period of time required to pay back the deferred taxes plus interest when the deferral stops voluntarily or after the property loses its homestead status. If repayment is not made by the imposed deadline, penalty, interest, lien, forfeiture, and other rules covering the collection of taxes are applied.
Does this program affect the refunds or rebates that the property owner can apply for?
A property owner can still apply for refunds or rebates based upon the qualifying tax amount listed on the tax statement. Money that was normally returned to the owner as a cash payment is now kept by the state and applied to the total deferred property tax. Furthermore, any Minnesota income tax refunds or lottery winnings are also used to reduce the total amount of deferred tax.
How does a property owner apply for the program?
A property owner may request an application from personnel in either the county assessor's office or the county auditor/treasurer's office. This application must be completed and sent to the Department of Revenue for processing on or before July 1st in order to ensure that a portion of the following year's tax is deferred. In addition to completing the application, the owner must attach a copy of the current year's tax statement and a report (i.e. for Torrens property, this report is known as the "condition of register" available from the county recorder; for abstract property, this report is known as an "owners and encumbrances report" prepared by a licensed abstracter) detailing any mortgages, liens, or judgments on the property.
Does the property owner need to reapply each year?
Once a property owner has enrolled in the program, it is not necessary to reapply. However, an owner must notify the Department of Revenue in writing by July 1st of the following year if the total household income in a calendar year exceeds $60,000. No additional property taxes will be deferred until the income drops below $60,000. At that time, the owner must again write the Department of Revenue and request that the tax deferral be reinstated.