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Volume 11 - Opinions of Counsel SBRPS No. 89

Opinions of Counsel

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

Whether or not a taxpayer opts for the installment method of reporting income for federal or State income tax purposes, the income of such taxpayer for purposes of the senior citizens exemption should include the gain he or she realizes each year from sales on the installment method.

Our opinion has been requested concerning the senior citizens exemption (Real Property Tax Law, §467). The question concerns the income eligibility of a taxpayer who claims that some of the income she reported on her income tax return should not be considered as income for purposes of the exemption because it was inherited.

The income requirement of the senior citizens exemption is an inclusive one. Section 467(3)(a) provides, in relevant part, that income includes: “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 ... inheritances.”

Here, the applicant has reported income on her exemption application (RP-467) that is substantially different from that she reported on her federal income tax return which she submitted in support of her application. As we have often noted, however, while we may look to the Federal income tax code for guidance in determining income for purposes of section 467, neither the federal nor the State income tax treatment of moneys is determinative for purposes of that partial real property tax exemption (Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677 (1973)).

The taxpayer contends that much of the interest she reported as taxable for income tax purposes was an inheritance. “Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you” (“Your Federal Income Tax” IRS Pub. 17 (for 2005 returns), p.87). Normally, if one inherits an income earning asset, that asset has a basis valued at the time of inheritance (id. at p.92). That basis amount represents the value of the inheritance. In a letter to the Assessor, the taxpayer attempted to explain why some of the interest, which she had reported as being taxable for federal income tax purposes, should not be considered as income for purposes of section 467. It appears to relate to her election not to use the installment method for reporting “a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs” (26 USCS §453(a)(1)). A legal encyclopedia explains:

Many taxpayers who sell real or personal property must automatically report gain on the installment method where at least one payment is to be received after the close of the tax year in which the sale occurs unless an election is made not to use the installment method. Under the installment method, gain from sales is reported over the payment period, instead of being reported all at once in the year the property is sold (33A Am Jur2d, Federal Taxation (2006) ¶6800).

Here, the applicant filed IRS Form 4797 as part of her income tax return. “The taxpayer can elect not to have installment reporting apply with respect to a particular sale. To make this election, the sale is reported ... on Form 4797...” (id. at ¶6808; emphasis in original; see also, 47A CJS §47). Accordingly, if, as it appears, the applicant sold a capital asset, perhaps one she inherited, at a gain (i.e., in excess of its basis), she apparently chose to report that gain in one year instead of in installments over several years as she could have done.

We previously addressed the issue of installment sales vis-à-vis the senior citizens exemption in 3 Op.Counsel SBEA No. 123 in which we concluded:

When an individual sells real property on an installment method, the income of such individual for purposes of section 467 of the Real Property Tax Law should include the gain he realizes each year from sales on the installment method. Such “gain” includes not only interest on the sales price but also the actual increase in value over the cost to the vendor.

In that opinion, we also stated:

The apparent intention of the Legislature of New York State in providing for the income requirements in section 467 of the Real Property Tax Law was to exclude anyone who had a set amount of cash accruing to him with which to meet expenses during the income tax year immediately preceding the date of making application for exemption. Therefore, it is the opinion of this office that whether or not the taxpayer opts for the installment method of reporting income for federal tax purposes, the income of such taxpayer for purposes of section 467 should include the gain he realizes each year from sales on the installment method (i.e., he cannot choose to report his overall gain totally in the first year, and thus leave himself without income to report from such sales in the year following, when he is still receiving installment payments on such sales).

Having reported the gain in its entirety in one year, of course, means that the taxpayer will not report portions of such gain in future years for income tax purposes. That does not mean, however, that the moneys she receives in such future years should be ignored in those years for purposes of determining income eligibility for the senior citizens exemption. Simply put, if the applicant can supply the Assessor with proof of the actual amount received by her in 2005 under the installment sales agreement, the Assessor should include that reduced amount in determining her income eligibility for the exemption, not the total amount she elected to report to the IRS. In subsequent years, should she again seek exemption under section 467, she will need to report the amounts received in such years, notwithstanding their not being reported on her income tax return. We recommend that the Assessor make a notation in his or her files to serve as a reminder in future years that, for the term of the installment sale, there should be such income noted on this applicant’s Form RP-467 or RP-467-Rnw.

April 12, 2006

Updated: