Changes to the Homestead Rebate, now called the Homestead Benefit, mean some home sellers have left the equivalent of money buried in their backyards for the new buyer to find.
These sellers — if they sold at the wrong time of year, and if their real estate attorneys and settlement companies were not up to snuff on the changes — could be out a few hundred bucks in property tax relief.
It happened to John and Patricia Nalberczinski, who after 25 years, sold their Millstone Township home in November 2011, moving to Virginia to be near their new grandson.
“How did this discrepancy get past our leaders? I’m not alone in this dilemma,” he said. “I want people to know about this.”
Inconsistencies in the language of the application, plus a lack of publicity about a blind spot for certain sellers, are at the root of the issue.
It used to be that New Jersey homeowners could apply for the Homestead Rebate, which was essentially a partial refund of property taxes. If you qualified, you’d get a check in the mail.
The state’s fiscal troubles meant changes for the rebate.
Instead of issuing a rebate check, qualified homeowners would receive a credit on their next year’s tax property tax bill. The state would send municipalities the cash for the credit you were to receive, and the municipality would lower your tax bill by that much.
Lots of people complained they preferred the rebate check, but generally, a credit is worth more than a refund.
“Had (a homeowner) gotten the refund, it would have been taxable income,” said Gail Rosen, a Martinsville-based certified public accountant. “A credit is money straight off the tax bill.”
Plus, she said, the refund checks cost the state a lot to administer “so we taxpayers were net out of money.”
But for home sellers like Nalberczinski, the timing of the sale meant that he, too, was out of money.
The new credit, according to the Division of Taxation, is attached to the property itself, not to the homeowner — even though the credit is calculated based on the eligibility of the homeowner.
Take the Nalberczinski home sale as a prime example. He applied for the 2010 benefit on June 14, 2011, and he met the eligibility requirements. The credit would be reflected on his 2012 property tax bill. (Remember, the credit for past years comes off future tax bills.)
Nalberczinski sold his home on Nov. 2, 2011, which meant he wouldn’t benefit from the credit on his 2012 taxes.
If the benefit was still in the form of a rebate check, he would have received a check to his new address or as a direct deposit to his bank account.
But now, because it’s a credit that’s applied to the next year’s property taxes, the new homeowner will benefit through a reduced property tax bill.
While the credit is now supposed to be attached to the property, other language on the Homestead application is far from clear.
The filing instructions found on page one say: “You are eligible for the homestead benefit …” It does not say, “Your property is eligible for the benefit.” Similar language referring to the homeowner shows up in several other places on the application.
The question of whether the property or the homeowner really gets the credit is made more complicated by Question No. 9 on the Homestead application. It reads: “If you no longer own the property listed in this packet … your homestead benefit may be issued in the form of a check …”
Hang on: If the credit is designed to stay with the property, why would the state send a check to a homeowner who no longer owns a property? It can’t go both ways.
“It’s kind of a flagrant mess of words,” Nalberczinski said.
Had Nalberczinski known he was moving at the time of the application, he could have indicated on Question No. 9. that the credit should be sent to him at his new location.
In all fairness, there is a short explainer on the application advising those who sell their properties after they apply to take the credit into consideration when they sell, meaning they can ask the buyer to reimburse the credit at closing. But this one-liner is easily overlooked by those who were not planning a sale at the time they applied for the benefit.
That’s a situation Bamboozled imagines many home sellers are facing.
Plus, the credit is calculated based on the homeowner’s income. The new homeowner would receive a benefit that was based on the previous owner’s income — more evidence that the credit isn’t necessarily attached to the property.
“I was clueless,” he said, noting that his real estate attorney and settlement company never mentioned anything about the credit, either.
Had they known, Nalberczinski could have negotiated for the credit’s value — $664.75 — as part of the sale.
To make things even more interesting, the buyer of Nalberczinski’s home could be receiving the Homestead benefit twice: once for the home he purchased from Nalberczinski, and once on his own home sale.
How could that happen?
Before the new homeowner sold his previous property, he had the opportunity to indicate with Question No. 9 that he was moving. In that case, the new homeowner could be eligible to receive a check equal to the property tax credit for his old home, and he’d also benefit from the credit to the Nalberczinski home.
Sounds like double-dipping.
What’s a home seller to do? We asked Taxation to explain how home sellers could receive a check even though the credit is supposed to be attached to the property. Either it’s attached to the property to the homeowner, not both.
Spokesman Andy Pratt said the checks sent to home sellers who indicated on their application they were moving is an attempt to make sure the maximum number of eligible people get the benefit.
“It’s an exception to the rule to show how we’re trying to bend over backwards for the taxpayer,” Pratt said. “We’re trying to make allowances for the fact that people sell their homes.”
Yes, but then it’s not solely a credit, flying in the face of the statement that the credit is attached to the property — a premise that some legislators disagree with.
Assemblyman John Burzichelli (D-Gloucester), who was an advocate of the credit, said it was designed to be property tax relief to the owner who paid the actual taxes. “(Treasury or Taxation) should come up with some way to make this individual whole,” Burzichelli said. But how?
Sen. Sam Thompson (R-Middlesex), who was contacted by Nalberczinski and several other home sellers, said the intent of the legislation was clear — to benefit the person who paid the taxes in the year that was listed on the application.
“Homes don’t pay money, people do. It’s intended for the people who paid the property tax,” Thompson said. He said homeowners like Nalberczinski should ask their buyers to refund that money, and if that doesn’t work, there may be no choice but to take the buyer to small claims court.
Thompson is considering solutions for future years.
“One thought I had would be to put in an amendment that when this kind of thing occurs, whatever tax credit the municipality gave to someone who is not entitled to it, the tax for the next quarter would be increased to compensate for that,” he said. “Then, the municipality would have the money to pay out the credit to the home seller.”
Bamboozled would love to see some action — any action — that offers remedies to home sellers who fall into the same unfortunate time frame as Nalberczinski. Still, such a solution wouldn’t be completely clear if the credit is still “attached” to the property and not the homeowner who paid the taxes. Some rewording of the application may be in order, too.
Nalberczinski’s real estate attorney sent a letter to the buyer’s attorney on Jan. 19, requesting the buyer send a check equal to the credit. Whether or not the buyer is legally obligated to do so remains in question. So far, no response.
In the meantime, Taxation said it is in the planning stages to reach out to more real estate professionals to make sure they’re aware of the changes.
We’ll let you know what happens.