Taxes

Massachusetts Homestead Exemption Increased to $1 Million

by Rich Vetstein on September 27, 2024

in Deeds, Homestead, Massachusetts Real Estate Law, Taxes

New Increase Included In Recently Passed Affordable Homes Act

Flying under the radar in the recently passed Affordable Homes Act is that the amount of protection offered by a recorded Declaration of Homestead has increased from $500,000 to $1 Million. This is great news for homeowners. The increase to $1 Million applies retroactively to any valid Declaration of Homestead that is currently on record at the Registry of Deeds and to any future recorded Homesteads. This means homeowners who have a valid homestead on record do not need to file a new homestead to gain the benefit of the recent increase.

A Declaration of Homestead is a written instrument recorded at the registry of deeds by a homeowner which provides protection against certain creditor claims. Think of it as an umbrella insurance policy against a claimant or creditor coming after the equity in your house. For example, let’s say you get into a really bad car accident and don’t have enough insurance to cover the loss. A personal injury attorney could try to file an attachment against your primary residence for those damages to his client. A declaration of homestead would shield your property from those claims, now up to $1M.

As noted by Norfolk County Register of Deeds William P. O’Donnell: “If you own a home, and it is your primary residence, you have an automatic homestead exemption of $125,000. However, if you file a Declaration of Homestead at the Registry of Deeds, the exemption increases to $1,000,000. The Homestead Law provides a homeowner with limited protection against the forced sale of their primary residence to satisfy unsecured debt up to $1,000,000 if they have filed. This is especially important when you consider that for most of us, a home is our most valuable asset. Consumers should take steps to protect that asset.”

Another feature of the Homestead Law is the Elderly Homestead Declaration, for those who are 62 years of age or older and provides protection of $1,000,000 for each qualified person.

The Register further noted, “In March of 2011, the Homestead Law was updated so that a valid Homestead is not terminated when refinancing a mortgage. Other changes that took place back in 2011 state that a Homestead can provide protections for a primary home even if it is held in a trust. The definition of a primary residence was also expanded to include a manufactured or mobile home.” 

A Declaration of Homestead also protects the sale proceeds if the home is sold for up to one year after the date of the sale or on the date when a new home is purchased with the proceeds, whichever comes first. Additionally, if the home is damaged by a fire, for example, the insurance proceeds are protected for two years after the date of the fire or on the date when the home is reconstructed or a new home is purchased, whichever is earlier.

While the Homestead Statute provides important protections for homeowners, it is important to note that certain debts are exempt from protection under the Homestead Act. These include federal, state, and local tax liens, as well as mortgages contracted for the purchase of a primary home and nursing home liens. Most other mortgages, debts, and encumbrances existing prior to the filing of the Declaration of Homestead, along with probate court executions for spousal and child support, are also not covered under the Homestead Protection Statute.

Declarations of Homestead can be recorded at the Registry of Deeds for a only a state-imposed fee of $36.00.

For more information concerning Massachusetts Homestead Declarations, visit the Mass.gov Homestead Law page or if you want to record a new Homestead Declaration contact me at [email protected].

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From The Assessor’s Office | Massachusetts Real Estate Tax Assessments and Abatement Basics

by Rich Vetstein on January 8, 2018

in Assessments, Real Estate Taxes, Taxes

“From the Assessor’s Office” — A New Regular Column by Jonathan Steinberg, MAA, MACR, Chief Assessor, Town of Westborough

Along with the celebration of the holidays comes the moment of truth when communities with quarterly tax billing send out the new Fiscal Year’s tax bills. Often there is an emotional response of frustration and anger. However, take a deep breath before contacting the Assessor’s office and ask yourself two questions: “Is it my assessment that’s too high or are my taxes simply too high? Could I sell my house for the assessed value?” If your assessment seems reasonable, but you think your taxes are too high, my recommendation is to go vote at Town Meeting or contact your City Councilmen, and get involved in your local government. Don’t contact your Assessor. If your assessment is too high, it’s worth considering filing for an abatement.

There are a few things to know before picking up the phone to call the Assessor’s Office.

Most importantly, applications for abatement must be postmarked by February 1st . After that deadline, the Board of Assessors has no authority to grant abatements for the Fiscal Year.

How are real estate taxes calculated and what do these bills represent?

The Fiscal Year begins on July 1st and runs until June 30th. The first two tax bills received on July 1st and October 1st are preliminary tax bills based upon the prior year’s values and tax rate. The new Fiscal Year’s assessments are set in the fall, the community determines if there will be a split or single rate and a tax rate set by mid-December. The tax bills sent by January 1st represent the Actual bills for the Fiscal year. These bills use the new Fiscal Year’s assessment and tax rate to determine the total year’s taxes due. The preliminary amounts are subtracted. The remaining amount is divided by two for the third and fourth quarters. This calculation results in the four quarters not being the same.

Ex. Fiscal 2017 assessment of $450,000 and rate of $17.80/$1000

Fiscal 2018 Preliminary bills $450,000 x $17.80/$1000= $8,010 /4 quarters = $2,002.50

Fiscal 2018 Q1 = $2,002.50   :     Q2= $2,002.50 Total Preliminary Paid = $4,005.00

Fiscal 2018 Value set at $465,000 and rate $18.25

Fiscal 2018 taxes: $465,000 x 18.00/$1000 = $8,370.00

Less Preliminary Bills: $8,370.00 – $4,005.00 = $4,365.00

Fiscal 2018 Q3 & Q4 Bills: $4,365.00/2 = $2,182.50

The total increase in taxes is $360.00

Many take the recent tax bill just received, multiply by four. In the example above, that would represent an increase of $720.00. You can take some consolation in that the next July’s bill should be less than the bills just received.

Understanding Your Assessment

Assessed values for Fiscal 2018 are as of January 1st, 2017. They are based upon the calendar 2016 sales of similar properties. The property that sold in your neighborhood last month is not considered in the current assessments. Unlike a “Fee Appraisal” for a mortgage, Assessor’s utilize “Mass Appraisal”. Assessors analyze an entire year’s sales, looking at assessment to sales ratios and different property characteristics. The analysis compares similar properties comparing factors such as size, location, style, age, quality and condition. Utilizing a CAMA (Computer Assisted Mass Appraisal) system, they apply this analysis equitably across all the properties in Town. The effectiveness of this relies on accurate data to evaluate that people paid X for Y.

A word of caution, before proceeding. When filing for an abatement, assessments can go up if errors are found that need to be corrected.

Procedures for Filing an Abatement

The first step is to get a copy of your property record card and review the information for accuracy. Look at the measurements and details such as acreage, bath count, fireplaces, finished basement, central air, etc. Next, review the grade rating, quality and condition of the dwelling compared to other similar properties. It is key to look only at similar properties. Don’t compare your newer colonial to a 1950’s cape. Inequitable valuation is a difficult case to support since the same valuation model is applied to all properties. If there are differences in value between you and your neighbor, it will be the result of differences in data. Correct or incorrect.

Don’ts:

  • Don’t cherry pick sales and properties throwing out anything that doesn’t support your argument. Assessor’s won’t overlook these. If other properties need correction, it doesn’t make your property value wrong.
  • Don’t compare your newer colonial to a 1950’s cape. Even if the property is next door, similar properties need to be compared. If you find data errors, filing for an abatement may be worth your time.
  • Don’t simply divide the assessment by the living area and compare $/square foot. This is not an accurate comparison. Factors are not linear. This calculation does not take into account differences in acreage and interior details.
  • Don’t bring a Zillow value into the Assessor’s office as support. Zillow can be a decent tool for lists of sales, but it falls short when it comes to analysis. Any information provided from online sources should be evaluated independently rather than relying on their values. There are simply too many variables that impact value that can’t be captured by these sites. Information about comparable sales can also be found through brokers or in the Assessor’s office.
  • Don’t bring in a bank appraisal that was done on your property within the last six months. It will use comparables that are after the January 1, 2017 effective date of the assessment.
  • Don’t refuse an inspection.

Do’s:

  • Fill out the application completely and submit it prior to the deadline.
  • Clearly explain any issues with the data on the record card.
  • Select and present comparable sales that are prior to the January 1, 2017 effective date of this assessment.
  • Select comparable sales that are actually comparable. They should be similar location, age, style, size etc.
  • Provide a reasonable opinion of value that is supported by your explanation.
  • Make yourself available for an inspection within the schedule of the Assessor’s. While you are never required to allow Assessor’s into your property, denying an inspection when applying for an abatement can almost guarantee a denial regardless of the reason for application. Don’t delay the inspection. Bear in mind, that this is something you have applied for so do your best to be accommodating for the Assessor’s inspection schedule.

After the Board of Assessors has acted on your application and you’ve received notice, if still unhappy with the outcome, the next step is an appeal to the Appellate Tax Board.

In closing, remember the February 1st filing deadline, assessments can go up if other errors are found(review your record card carefully), and go back and review the “Don’ts” above before sending in your application.

Jonathan Steinberg, MAA, MACR, is the Chief Assessor, Town of Westborough

The views contained in this article are the personal views of the author, not the Town of Westborough or the Commonwealth of Massachusetts.

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Tax Cuts and Job Act of 2017 Impact On Massachusetts Real Estate

by Rich Vetstein on December 20, 2017

in Commercial Real Estate, Landlord Tenant Law, Leasing, Massachusetts Real Estate Law, Mortgages, Real Estate Taxes, Refinances, Rental Housing, Taxes


Tax Reform Act Not Nearly As Bad As Feared For Massachusetts Homeowners

With Paul Ryan and Mitch McConnell and their minions burning the midnight legislative oil, the Tax Cuts and Jobs Act of 2017 is set to pass with President Trump’s signature before Christmas. (Updated: President Trump signed the bill into law on Dec. 22).  Everyone is asking me the same question. How will the biggest change in US tax policy in 30 years affect the Massachusetts real estate market and homeowners? There’s been a ton of commentary that the Act is the second coming of the Apocalypse for the real estate market, but I’m not convinced. While I do have many concerns with the overall bill (bloating the deficit, etc.), my opinion is that it will be a small net positive for the real estate industry.

(Disclaimer: I am neither a tax attorney nor a CPA, and I don’t play one on TV, so consult your own tax professional for any tax advice).

Capital Gain Exclusion on Sale of Primary Residence – No Change 

Excellent news here. The long-standing rule has been that the gain (increase in value) of the sale of a primary residence is non-taxable up to $250,000 for a single person and up to $500,000 for a married couple, if you occupied the home for 2 out of the last 5 years. This provision has been a huge incentive for home sales for many years. In prior GOP tax reform bill drafts, the exemption was increased so that owners needed to reside in the home for 5 out of the 8 years preceding the sale. The National Association of Realtors argued that this change would have resulted in a 10% drop in home sales. In response to the NAR’s intense lobbying, the final bill does not include any changes to the capital gains exclusion.

So the current rule stays in place – you can exclude up to $250,000 as a single filer and $500,000 for joint married filer in capital gain on the sale of your primary residence if you lived there for 2 out of the last 5 years. This is really great news for the Massachusetts real estate market.

SALT – Real Estate Taxes and State Income Taxes — $10,000 Cap

This change is a “loss” to homeowners, especially those with high value properties and in wealthy towns. Currently, all real estate taxes paid in Massachusetts are 100% tax deductible if you itemize your deductions. In Massachusetts, those real estate tax bills can be quite large.

Under the Act, there is now a deductibility cap of $10,000 — which includes not only local real estate taxes but all state and local income taxes. This will be a huge hit to taxpayers in wealthy towns with high real estate tax bills. Going forward, taxpayers will only be allowed to deduct $10,000 of all real estate taxes and state/local income taxes. This is definitely a major “loss” for Massachusetts homeowners, especially those in towns with high real estate taxes. This change, however, may be offset by the increase in the standard deduction ($12,000 for single, $24,000 for married) and the boost in child tax credits, but if you live in Weston or Boston, for example, this is likely going to hurt.

Tax Tip:  If your real estate tax bill is over $10,000, consider pre-paying your real estate tax bill before 12/31/17, so you can still deduct it. According to the Boston Globe, most town assessors around the state are accepting such payments. Update (12/28/17): The IRS has issued a Formal Advisory on Real Estate Tax Pre-Payments. Click to read my full review here.

Mortgage Interest Deduction – Deductible Up to $750,000. No Deductions For HELOC/Vacation Homes 

Again, due to the NAR’s strong lobbying efforts, the GOP kept the mortgage interest deduction intact for the most part, but with caps, and equity lines and second mortgages losing their deductibility. I would say this is a net “win” for homeowners. Starting in 2018, homeowners can keep the mortgage interest deduction on a loan of up to $750,000, down from the current law’s limit of $1 million.

Individuals who take out home equity (HELOC) loans, however, will no longer be able to deduct that interest under the new bill. The same is true for second mortgages and vacation homes. No more interest deductions for those. So this change may impact the vacation home market, particular down the Cape and Islands. However, a rental property owner could offset this loss by renting out the home for a few weeks, per the new benefits for rental housing discussed below.

Importantly, these new rules only apply to new mortgages applied for after Jan. 1, 2018. Existing mortgages incurred on or before Dec. 15, 2017 will remain fully tax deductible. There is some IRS guidance on these new rules, so consult your CPA.

Rental Property Owners/Landlords — Thumbs Up! 

As Bloomberg News reports, the Tax Reform Act will be very good for rental property owners and landlords if they do business via pass-through entities — real estate investment trusts, partnerships, limited liability companies, and S corporations — all of which are set to get big tax breaks in the Act. Under the new rules, all pass through income for qualified entities will enjoy a 20% deduction on the owner’s individual 1040 return. For landlords who have greater than $157,500 (single) or $315,000 (married filing jointly) in qualified taxable income, they can select an alternative deduction of (i) the greater of 50% of all W–2 wages, or (ii) the sum of 25% of the W–2 wages plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property.

Attorney’s Advice: I’ve always counseled clients to set up an LLC to hold title to rental property, both from a liability and tax planning standpoint. With the Tax Reform Act giving even greater benefit to pass-through entities, it makes even more sense to set up that LLC. If you need assistance setting up an LLC, please email me at [email protected].

Also for depreciation rules, the depreciable life term has been reduced — from 27.5 years to 25 years for residential property and from 39 years to 25 years for nonresidential property. In addition, while most other businesses will find their interest deduction limited under the Senate bill, that limitation doesn’t apply to landlords, who can continue to deduct their mortgage interest in full.

There are other rules also favoring rental property owners, so definitely consult your CPA to prepare for 2018.

Thoughts and Comments?

As an attorney who has handled thousands of residential purchases and refinance loans, I’ve never been one to ascribe to the notion that the tax code has a ultimate determinative effect on whether a buyer is going to purchase a home or not. I’ve always believed that tax implications are one factor out of many in the home buying and selling equation. In my opinion, income, job security and consumer confidence play a larger role. I would doubt that the young couple searching for a starter home in Medway is going to say “geez, now that the SALT deduction is limited to $10k, let’s scrap this whole home buying idea.” If people have decided they want to buy a house, they will usually do so.

Overall, I think the Tax Cuts and Jobs Act of 2017 will have a net positive effect on the national and Massachusetts real estate market, despite the SALT cap and changes to HELOC/second mortgage deductibility. I’m hopeful that the increase in standard deductions and child tax credits will offset the mortgage deductibility and real estate tax changes. The no-change to the capital gain rules was critical and we have the NAR to thank for that. That was a game changer. And lastly, the rental and investment property market will get a big boost.

Rick Moore, Senior Mortgage Advisor with Zenith Mortgage Advisors in Holliston, is one local loan officer who is happy with the Tax Reform Act, both personally and professionally. “I think it’s a historic day, and I’m happy to have the extra money for some home improvement projects. Overall, if the economy will get a boost as expected by the administration, then that’s good for me as a loan officer. I’m looking forward to a very prosperous 2018!”

I do, however, worry about the addition of some 1.5 Trillion to the federal deficit as a result of the tax reform act. This is never good for long term stability of the economy and the housing market. It’s probably a safe bet to say that interest rates are going to rise to keep inflation at bay. I’m concerned that in exchange for some short term gain, we may be setting ourselves up for some long term pain. Only time will tell, but I hope Rick is right!

Feel free to post your comments below and on Facebook.

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It’s All A Write Off! Tax Deductions For Massachusetts Real Estate Sellers and Buyers

by Rich Vetstein on March 30, 2013

in Closings, Condominium Law, Massachusetts Real Estate Law, PMI, Real Estate Taxes, Taxes

Tax Reform Act Alert: The Tax Cuts & Jobs Act of 2017 has dramatically changed the tax treatment of real estate taxes and mortgage interest. Please review my overview of the new Tax Act here.

One of my favorite Seinfeld episodes is the one where Kramer tries to explain to Jerry how tax write-offs work. “It’s all a write-off!” exclaims Kramer who, not surprisingly, had no idea what he was talking about. I’ve embedded the Youtube video below.

With the April 15 tax deadline quickly approaching, let’s talk about some of the taxes, deductions, and “write-offs” arising out of a Massachusetts residential real estate purchase and sale. (Disclaimer: I am neither a CPA nor tax attorney, so consult your own tax professional for specific questions).

Real Estate Property Taxes

Every Massachusetts municipality levies a real estate property tax on residential property. Indeed, the real estate tax is the primary revenue producer for most towns with a limited commercial tax base. The real estate tax rate is set by the local board of assessors and is keyed to the assessed value of your land and home, which is often less than the true market value.

Real estate taxes are generally tax deductible if you itemize your deductions on IRS Form 1040, Schedule A. At closing, the closing attorney will ensure that all real estate taxes are paid up and allocated between buyer and seller as of the closing date. If the end of the fiscal quarter is approaching, most lenders will require that the buyer pay the upcoming real estate tax bill in advance.

Most lenders these days require an escrow account for the payment of real estate taxes, and the mortgage company will actually send the payment to the assessor. However, the homeowner should check the actual property tax bill to calculate the exact amount of real estate taxes paid for the year.

Rich’s Advice: It’s very important to keep a copy of your HUD-1 Settlement Statement on file (and for your tax preparer). Also, get a copy of your loan amortization schedule for reasons I’ll discuss later.

Mortgage Interest Tax Deduction

The mortgage interest tax deduction is typically the largest tax deduction taken by a typical homeowner. The deduction applies to interest paid on a qualifying mortgage for both a principal residence and a second home. It also applies to home equity lines and second mortgages subject to some limitation, discussed below.

If you paid any points for getting a mortgage, they may also be tax deductible, either the year paid or over the life of the loan. This applies to both purchase loans and refinances. (Check your HUD-1 Settlement Statement). The same is true for PMI — mortgage insurance premiums. They remain tax deductible for 2012 and 2013 thanks to the Fiscal Cliff Bill.

Cash out refinances and equity lines have some special rules. If you use the money for a car, a vacation, college tuition, etc., then you can deduct your interest on loan amounts up to $100,000. If you borrow more than $100,000, the interest on the excess is not deductible. However, if you use the money to make improvements on your home, then the money is treated for tax purposes as though it’s part of your home mortgage … so you can deduct all the interest, along with your mortgage interest, as long as the total amount you’ve borrowed doesn’t exceed $1 million plus $100,000.

Consult IRS Publication 936 for more information on the mortgage interest deduction.

Rich’s Advice:  At closing, I advise new buyers to speak to their accountant about whether they should recalculate their W-4 withholdings in light of their new mortgage and corresponding tax deductions. This is where that loan amortization schedule comes in very handy. New buyers often have substantially more tax deductions than before becoming homeowners, and thus, they can adjust their withholdings so they can keep more of their take home pay every week, instead of giving Uncle Sam an interest free loan!

Massachusetts Property Transfer Tax

Sometimes called deed stamps, transfer tax or excise tax, Massachusetts home sellers must pay a tax on selling their property. For every Massachusetts county except Barnstable and the Islands, the tax is $4.56 per thousand of the purchase price on the deed. So for a $500,000 sale, that’s a whopping $2,280 tax bill. There is considerable debate among tax professionals as to whether this tax is deductible on your federal and state return. It’s best to consult your tax preparer.

Capital Gains On Sale

If you sell your home for more than you paid for it, you have a capital gain, and in theory you have to pay capital gains tax. However, in most cases, you don’t have to pay taxes on the first $500,000 of capital gain on a home (or $250,000 if you’re married and filing separately). To get this special treatment, you have to have owned the home and lived in it as your primary residence for two years out of the last five years prior to the sale. Even if you didn’t own and live in the home for two full years, you might still be able to exclude some or all of your capital gain; you just won’t be eligible for the full $500,000 exception.

Other Closing Costs

Unfortunately, most of the typical real estate closing costs are not tax deductible. This includes lender origination fees, credit report, flood certification, homeowner’s insurance, appraisals, attorney fees, title abstract, title insurance, county recording fees, and real estate commissions.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney who helps people buy, sell and finance residential real estate. If you need assistance, please contact him at 508-620-5352 or at [email protected].

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Fiscal Cliff Bill Saves Home Mortgage Interest Tax Deduction and PMI Tax Deduction

by Rich Vetstein on January 2, 2013

in Condominium Law, PMI, Real Estate Taxes, Tax Credit, Taxes

mortgage-interest-deductionBoon for Massachusetts Homeowners

More good news for Massachusetts homeowners coming out of Congress’ late night passing of the Fiscal Cliff Bill. The mortgage interest tax deduction — which was reportedly on the Congressional chopping block — was untouched by Congress, leaving it in place. This is huge for the middle class, and especially for house-poor Massachusetts homeowners who tend to have larger mortgages than the rest of the country.

Congress also extended the tax deduction for private mortgage insurance (PMI) payments through December 31, 2013. Homeowners who were not able to put 20% down must typically pay for private mortgage insurance which protects lenders in case of a borrower default. PMI payments remain tax deductible for 2013 under the Fiscal Cliff bill, providing another tax break for Massachusetts homeowners.

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100316_photo_vetstein (2)Richard D. Vetstein, Esq. is a Massachusetts real estate attorney who writes frequently about new legislation concerning the real estate industry. He can be reached at [email protected].

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