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Volume 4 - Opinions of Counsel SBEA No. 56

Opinions of Counsel index

Aged exemption (income requirement) (gain on sale of residence) - Real Property Tax Law, § 467:

Whether moneys received are taxable or nontaxable for federal or state income tax purposes is immaterial to the issue of inclusion or exclusion in computing income for purposes of section 467 of the Real Property Tax Law. Thus, the gain from the sale of a prior residence must be included in computing the income of an aged person for the purposes of determining eligibility for the aged exemption.

Our opinion has been requested concerning the income requirement of section 467 of the Real Property Tax Law, the so-called aged exemption. The question is whether payments received on the sale of a former home should be considered “income” for purposes of determining eligibility for this exemption.

Section 467 requires a municipality, which has chosen to grant this exemption, to set an income limit between $3,000 and $6,000 (increased to $6,500 pursuant to Chapter 1004 of the Laws of 1974) for the income tax year immediately preceding the date of making application for exemption. This section further provides that “[s]uch income shall include social security and retirement benefits, interest, dividends, net rental income, salary or earnings, and net income from self-employment, but shall not include gifts or inheritances”. This language clearly indicates that the ordinary income tax rules do not apply when computing income for purposes of section 467.

An individual’s personal residence is a capital asset and under federal (and New York State) income tax rules, 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 which is held for personal use. However, section 1034 of the Internal Revenue Code (and § 354-a of the New York Tax Law) provides that a realized gain is not recognized for income tax purposes if the taxpayer purchases or constructs a replacement residence within a specified period. If applicable, the nonrecognition provisions are mandatory. In addition, for federal income tax purposes, section 121 of the Internal Revenue Code provides that an individual who is sixty-five years of age or over may exclude from gross income any capital gain attributable to the first $20,000 of the price realized on a sale of his personal residence; where the adjusted sales price of the residence exceeds $20,000, only that portion of the gain which bears the same ratio to the full amount of such gain as $20,000 bears to the adjusted sales price is excludable. Thus, under federal and state income tax laws, there is provision for the exclusion of much, if not all, of the capital gain resulting from the sale of an old residence which is replaced within a statutory period with a new residence.

However, relying on the statutory language of section 467 with regard to income, we have consistently stated that whether moneys received are taxable or nontaxable for federal or state income tax purposes is immaterial to the issue of inclusion or exclusion for purposes of the aged exemption. The legislative intent in enacting the income requirement of section 467 would appear to have been to exclude persons from the benefits of this statute who have more than a set amount of cash accruing to them from all sources with which to meet expenses during the income tax year immediately preceding the date of making application for exemption, excluding gifts and inheritances. In this connection attention is directed to a 1973 decision of the Court of Appeals, where the matter was treated in part (Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677). There, the Court stated, at page 679, that:

The legislature expressed no intention of incorporating the federal or state tax rules into the exemption statute. Absent direction to the contrary, the term “income”, as used in the particular statute, must be judicially construed.

In its decision, the court supported a qualified “cash flow” concept, and, among other things, held that the statute contemplated using the term “income” to embrace capital gains, and that a transfer, return, or redelivery of capital is not income for purposes of section 467.

Therefore, the fact that the profit from the sale of a personal residence is entitled to special treatment under federal and state income tax laws, where such profit is invested in a new residence within a specified statutory period, does not change our opinion that the gain from the sale of the prior residence must be reported as “income” for purposes of section 467. As we have previously stated, the philosophy of special treatment accorded to capital gains for federal and state income tax purposes has no relation to the principle of measuring the actual amount of cash available to the property owner for purposes of this exemption statute.

Thus, it is our conclusion that the gain from the sale of the first residence must be included as income for purposes of section 467 , despite the fact that such gain would receive different treatment under federal and state income tax laws, and the ordinary rule to follow is that “gain” from the sale of the property is the excess of the amount realized (i.e., the total contract price) over the adjusted cost basis (generally the original cost plus selling expenses, such as broker’s commissions) of the property.

November 25, 1974

NOTE:  Modified by Opinion 10-12.

Updated: