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Volume 10 - Opinions of Counsel SBRPS No. 12

Opinions of Counsel index

Senior citizens exemption (income requirement) (capital gain from sale of home) - Real Property Tax Law, § 467:

Where a senior citizen realizes a capital gain from the sale of his or her home but purchases replacement property in the same income tax year, that gain is not income for purposes of determining eligibility for the senior citizens exemption if the replacement property costs as much as or more than the sale price of the former home. If the replacement property costs less than the sale price of the former home, some or all of the capital gain may be considered income. [4 Op.Counsel SBEA No. 56 modified]

Our opinion has been requested concerning the senior citizens exemption (Real Property Tax Law, §467). The question is, if a senior citizen sells his or her home and buys replacement property within a certain time period, whether any gain on the sale of that residence should be included as “income” for purposes of determining eligibility for the senior citizens exemption.

Section 467 authorizes local governments to grant a partial exemption from real property taxation to senior citizen homeowners who meet certain statutory requirements. The law provides that no senior citizen exemption shall be granted if the income of the owner or combined income of the owners of the property for the income tax year immediately preceding the date of making the application exceeds a certain amount. For purposes of what constitutes “income,” RPTL, section 467(3)(a), provides in pertinent part:

Such income shall include social security and retirement benefits, interest, dividends, total gain from the sale or exchange of a capital asset which may be offset by a loss from the sale or exchange of a capital asset in the same income tax year, net rental income, salary or earnings, and net income from self-employment, but shall not include a return of capital, gifts, inheritances or monies earned through employment in the federal foster grandparent program (emphasis added).

With respect to gain on the sale of a personal residence, we stated in 4 Op.Counsel SBEA No. 56 that an individual’s personal residence is a capital asset, and under federal (and New York State) income tax rules, a capital gain can be realized from the sale or exchange of the residence, the same as in the case of a sale or exchange of other property held for personal use. Section 1034 of the Internal Revenue Code and section 354-a of the New York Tax Law provide that a realized gain is not recognized for income tax purposes where a replacement residence is purchased or constructed within a specific time period. However, we have consistently stated that whether moneys received are taxable or nontaxable for income tax purposes is not dispositive of the issue of inclusion or exclusion for purposes of the senior citizens property tax exemption (Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677 (1973)).

Thus, we concluded in 4 Op.Counsel SBEA No. 56, a 1974 Opinion, that the gain from the sale of a prior residence must be considered as “income” for purposes of section 467, regardless of the fact that the profit from the sale of a residence is entitled to special treatment under federal or state income tax laws. However, after this Opinion was written, the Legislature, in chapter 535 of the Laws of 1975, added that “income” shall include “the total gain from the sale or exchange of a capital asset which may be offset by a loss from the sale or exchange of a capital asset in the same income tax year” (emphasis added). Thus, by adding this provision, although the gain from the sale of a residence still may be considered “income,” this gain may be offset if the proceeds from the sale are used to purchase replacement property (or, in other words, “exchange” the “capital asset”) within the same income tax year. {1}

By way of example, if a home was purchased in 1985 for $75,000, and sold in 1995 for $100,000, a $25,000 capital gain would be realized. If nothing else was done, such a capital gain would constitute income for section 467 purposes. {2}  However, if the $100,000 in proceeds was used to purchase a replacement property within the 1995 income tax year, with a cost equal to or greater than $100,000, there would be no income recognized for exemption purposes. This is because this would be considered an exchange of a capital asset in the same year with the net result being no gain.

However, if the replacement property was purchased for less than $100,000, there may, in fact, be a gain which would be considered income. Using the same example, if the replacement residence was purchased for only $90,000, the total proceeds from sale of the previous residence ($100,000) would not have been fully used. Thus, the entire gain ($25,000) would not be offset by the purchase of the replacement property. In this instance, it would appear that $10,000 would be considered income for exemption purposes and $15,000 would be offset by the purchase.

Likewise, we must recognize that this offset provision will not apply where the senior citizen purchases replacement property in a subsequent income tax year. The fact that (1) the periods of ownership of the two parcels may be “tacked” where the replacement purchase is within one year of the sale of the former residence or (2) that the period of ownership requirement is deemed satisfied where the senior citizen received the exemption on his or her former home (RPTL, §467(3)(b)) is irrelevant to determining the income eligibility of the applicant.

In conclusion, if an individual is otherwise eligible to continue his or her senior citizens exemption, it is possible for the gain from the sale of a residence to be offset so as to not constitute “income” for purposes of section 467. To the extent it indicates otherwise, 4 Op.Counsel SBEA No. 56 is hereby modified.

April 18, 1995


{1}  This would appear to be consistent with the federal and state income tax rules. However, this does not change our opinion that whether moneys received are taxable or nontaxable for federal or state income tax purposes is not dispositive with respect to the issue of their inclusion or exclusion in determining income eligibility for purposes of the senior citizens exemption.

{2}  Of course, if the senior citizen no longer owns a home, there is no longer a section 467 issue.

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