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Volume 1 - Opinions of Counsel SBEA No. 8

Opinions of Counsel index

Aged exemption (income and ownership requirements) (net rental income from owner-occupied multi-family dwelling) - Real Property Tax Law, § 467:

For purposes of the income requirements of this section, net rental income from multi-family dwellings occupied as the legal residence of the owner is used in computing the owner’s income. Net rental income is gross rental income less the ordinary and necessary expenses attributable to the portion of the property used to produce income. Bookkeeping items such as depreciation are not deductible from gross rental income in computing net rental income.

Net rents are the gross rental income less ordinary and necessary expenses, which include utility and tax expenditures, actually paid out by the applicant during the income reporting period. However, since that portion of the property which is occupied by the applicant is not income producing, only the portion of the ordinary and necessary expenses attributable to the income producing portion may be deducted from gross rentals. For example, if the property in question consists of a two-family dwelling and both apartments are of an identical size then the expenses deducted from rental income would be prorated on the basis of one-half, and that portion of the expenses allocated to the owner’s apartment would not be a deduction against the gross income.

For purposes of the $3,000 limit on income, the income received during the calendar year preceding the filing of the application rather than the twelve-month period preceding the filing of the application is determinative of eligibility.

The best evidence of the rental income derived by the owner would be the net amount (gross rental less expenses) retained by him as income on his Federal or New York State income tax return. However, if the owner did not file income tax returns, he should submit a statement to the assessor showing the expenses deducted from the gross rentals to arrive at the net rental income. The assessor will have to use his best judgment on apportionment after taking into consideration the relative size of the dwellings.

Depreciation, one of the items commonly deducted from gross rents for income tax purposes, is a bookkeeping item which reflects an annual loss of value of a particular asset during its useful life. Since it is not cash inflow, it cannot be considered in computing the income of an applicant for the aged exemption.

March 6, 1970