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Volume 5 - Opinions of Counsel SBEA No. 36

Opinions of Counsel index

Aged exemption (income requirement) (capital gains and losses - of loss from one income source against gain from another) - Real Property Tax Law, § 467:

For purposes of the income requirement of section 467 of the Real Property Tax Law, it is proper to credit actual losses against actual gains received from a particular type of investment source. Where the loss exceeds the gain, no further deduction is allowable against income from other sources.

We have received an inquiry relating to the income reporting requirement of section 467 of the Real Property Tax Law which authorizes a partial exemption from taxation on the owner-occupied residence of certain aged persons. The question is whether in demonstrating that his income is at or below the limit authorized to qualify for the exemption, an applicant may deduct from his overall gross income a loss sustained on an apartment house he owns in another jurisdiction. In other words, at issue is whether a loss from one investment source may be credited against income realized from another source.

Section 467 provides that the owner-occupied residence of persons sixty-five years of age or older who meet the requirements of that section may be exempt from taxation to the extent of 50 percent of the assessed value when the provisions of section 467 are adopted by a municipality. An adopting municipality has the further option of setting an income limitation for otherwise qualified persons at any figure between $3,000 and $6,500. Where an applicant’s income exceeds the figure set by the granting municipality, no exemption may be granted. The statute also provides, in subdivision 3, that “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.”

In defining income, one of the specific statutory inclusions within the total income of an applicant is net rental income. In such case, nonpersonal expenditures actually expended are properly deductible with respect to income producing property which could consist of a portion of the property used to produce income or of a separately owned parcel not occupied in part by the applicant (1 Op.Counsel SBEA No. 8, 3 Op.Counsel SBEA No. 46). It would appear, however, that a loss sustained in one investment category should not be used as a deduction against other sources of income.

In Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677, the Court of Appeals noted that it was evident that section 467 by its listing of types of income did not intend to use the term “income” in any classic sense, if there be one, in the law of income taxation. One of the issues in the case was whether a capital loss sustained in a separate and distinct transaction from the actual sale of mutual fund shares could be deducted from a capital gain dividend realized from sales of capital assets held by the same fund. Of particular significance and a point which appears relevant to this inquiry, the facts of this case show that the capital loss actually exceeded the amount of the capital gain received. The Court held that section 467 contemplated using the term “income” to embrace capital gains which could be offset by capital losses. While the opinion did not directly address itself to the issue of whether the excess capital loss could be credited against other income, it would appear that such approach was impliedly rejected by the Court by its silence on the matter.

The primary and sole purpose intended by the Legislature for the enactment of section 467 was to provide assistance to senior citizens of this State who have only a small fixed income on which to rely to meet their living expenses. The Legislature directly provided that eligibility be denied to persons whose income exceeded the statutory limit and in defining certain categories of income clearly excluded from consideration income tax concepts and the special exclusions, computations and deductions permitted by legislative grace under State or Federal laws for income tax purposes. The aforementioned decision of the Court of Appeals does shed additional light on the approach which may be used by assessors in computing income for purposes of this exemption which apparently calls for the classification of income pursuant to type. Accordingly, it would appear to be proper to credit actual losses against gains received from a particular type of investment source. Where, however, the losses exceed the gain, no further deduction should be made against income from other sources.

September 30, 1975

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