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Volume 10 - Opinions of Counsel SBRPS No. 78

Opinions of Counsel index

Senior citizens exemption (income requirement) (net rental income - adult children) - Real Property Tax Law, § 467:

Since income eligibility for the senior citizens exemption depends only on the owner’s (and, in some cases, the owner’s spouse’s) income, the income of an applicant’s adult child residing in the property is not considered. However, net rents paid by the child to the parent are income to the parent, even if those rents are in the form of the payment of expenses of maintaining the house in exchange for the child’s right to occupy the premises.

Our opinion has been requested concerning the senior citizens exemption (Real Property Tax Law, § 467). An applicant’s son resides with her and allegedly gives her gifts to pay her living expenses, including her mortgage and taxes. While it is understood that gifts and inheritances are not income for purposes of section 467, the question is whether any of the moneys given to the applicant may be considered as income.

We have received numerous inquiries from assessors regarding situations where adult children, often with families of their own, reside in the home owned by their (senior citizen) parent(s). Section 467, however, includes no household income test. {1}  Since only the owner’s (and the owner’s spouse’s) income is considered in determining eligibility for the exemption (RPTL, § 467(3)(a)), moneys contributed by the adult children are ignored (as being gifts), unless rental payments are shown. Arguably, in these situations, the statute’s failure to include a household income test creates room for abuse of the law’s original intent: enabling senior citizens with limited means to retain their real property despite an increasing real property tax burden (see Governor Rockefeller’s approval memorandum for L.1966, c.616 reprinted at 1966 NYS Legislative Annual p.346).

The mere fact that a senior citizen’s family resides in the senior’s residence does not, by itself, affect the senior citizen’s eligibility for the tax exemption. In 4 Op.Counsel SBEA No. 82, we stated that if a senior citizen receives rental income which is less than the “fair market value” of the property, it is the rental income which is actually received that must be considered for purposes of determining the eligibility for the exemption. {2}  Thus, if a senior citizen receives nothing in exchange for his or her children’s company, the senior citizen has received no rental income.

However, if the occupants have been sharing the expenses associated with the property, a different conclusion may apply. Rent need not take the form of a regular cash payment to the owner. For example, if the occupant is paying some or all of the expenses of maintaining the house in exchange for the right to occupy the premises, these payments may be recognized as a form of rent. Indeed, in the context of income taxation, it has been stated:

When the lease obligates the tenant to pay the landlord’s expenses, e.g., taxes or mortgage installments, the tenant’s payments are treated as rent paid by him to the landlord. If the expenses paid by the tenant are of a deductible nature (local taxes, interest, etc.), the landlord may claim the deduction (33A Am Jur 2d, Federal Taxation (1999) ¶12559).

The rationale for considering such payments to be income is that they either directly or indirectly reduce the senior citizen’s expenses. The legislative intent behind the income requirement of section 467 was to withhold the benefits of the exemption statute from those people 65 years or older who receive, from all defined sources, more than a set amount of funds with which to meet all expenses during the income tax year immediately preceding the date in which application for the exemption is made, excluding gifts and inheritances (4 Op.Counsel SBEA No. 56, citing Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677 (1973)).

Clearly, however, it may be extremely difficult to prove that adult children are contributing to household expenses if the senior citizen denies receiving any such moneys. If it is perceived to be wrong for senior citizens exemptions to be granted to property occupied in part by an applicant’s gainfully employed children, further legislation would seem necessary to resolve the problem.

February 10, 1999

{1}  Compare, e.g., RPTL, § 467-b [tax abatement for rent-controlled and rent regulated property occupied by senior citizens] and Tax Law, § 606(e) [real property tax circuit breaker credit] which do measure household income in determining program eligibility.

{2}  Note that only net rental income is included as income in determining eligibility for the senior citizens exemption. In construing the phrase “net rental income,” we have concluded that “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” (1 Op.Counsel SBEA No. 8; 5 id. No. 30).