Certain taxpayers age 65 or older may be eligible to claim a refundable credit on their state income taxes for:

•  the real estate taxes paid during the tax year on the residential property they own in Massachusetts that is used as their principal residence; or
• the rent paid during the tax year on the residential property they rent in Massachusetts that is used as their principal residence.

Refundable Credit:

If the credit exceeds the amount of total income tax due for the year, the excess amount of the credit will be refunded to the taxpayer without interest.

Maximum Credit Allowed for Tax Year 2014:

For tax year 2014, the maximum credit allowed for both renters and homeowners is $1,050.

To be eligible for the credit for the 2014 tax year:

1. the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the taxable year ;
2. the taxpayer must own or rent residential property in Massachusetts and occupy the property as his or her principal residence;
3. the taxpayer’s total income cannot exceed $56,000 for a single filer who is not the head of a household, $70,000 for a head of household, or $84,000 for taxpayers filing jointly; and
4. for homeowners, the assessed valuation of the homeowner’s personal residence as of January 1, 2014, before residential exemptions but after abatements, cannot exceed $691,000.

No credit is allowed if one of the following applies. Taxpayer:

• claims married filing separate status; or
• receives a federal or state rent subsidy; or
• rents from a landlord who is not required to pay real estate taxes; or
• is the dependent of another taxpayer.

• for residents and part-year residents, both Schedule CB Worksheets and Schedule CB, Circuit Break Credit.
• residents and part-year residents can check to see if they may qualify by reviewing the Income and Tax Thresholds Table below. If they qualify, the credit is determined by completing the both Schedule CB Worksheets and the Schedule CB, Circuit Breaker Credit.
• nonresidents do not qualify for this credit since the property must be an owner occupied principal residence located in Massachusetts.

Eligible taxpayers who own their properties may claim a credit equal to the amount by which their property tax payments in the current tax year, (excluding any exemptions and/or abatements) including water and sewer use charges assessed, exceed 10% of their total income for that tax year.

Property Tax payments = total tax paid in the tax year (or 25% of rent)

less. real estate tax abatements, exemptions and other reductions received

in the tax year

less: interest and penalty charges on delinquent payments

plus: 50% separately stated water and sewer paid in the tax year

Property Tax Payments:

For a homeowner, property tax payments are actual amounts paid during the calendar year after making certain adjustments. All property tax payments made during the calendar year are included regardless of the year to which payments are applied. For example, all real estate tax payments made in 2012, including amounts properly due in another year, are used by a homeowner in determining the correct property tax payment amount for purposes of the credit.

Adjustments that must be made to reduce property tax payment amount include:

• abatements granted by local assessors;
• exemptions granted by cities or towns to qualifying veterans, surviving spouses, blind persons, and senior citizens earned through the Senior Work Program; and
• interest and penalty charges assessed due to delinquent payments.

Senior Work Program under G.L. c. 59, s. 5K — Taxpayers who participate in this program receive a reduction in their property taxes owed and such reduction may not be included in the calculation of property tax payments.

No adjustment is required, however, for taxes assessed, either under the Community Preservation Act, the Cape Cod Open Space Land Acquisition Program or by a tax-levying district.

Real Estate Payment Plus 50% Water and Sewer Payments:

Taxpayers residing in communities that do not include water and sewer debt charges in their property tax assessments may include, in addition to their property tax payments, 50% of the actual water and sewer use charges paid during the tax year when calculating their credit.

Towns that may not take the 50% Water and Sewer Use Charges:

Generally, cities and towns with municipal water and sewer systems issue an annual bill from the municipal or district water /sewer department. This bill is sent separately from fiscal year real estate bills. Current water and sewer use charges are not shown on the real estate tax bill. It is only when a water/sewer bill is delinquent that it is added to a tax bill in most communities (city or town must have adopted G.L. c. 40, ss. 42A-F and C. 83, ss. 16A-G). If delinquent charges are added to the tax bill, the charges become part of the tax and constitute a lien. The provisions of the circuit breaker relate to current sewer/use charges.

The water and sewer use charge represents both capital debt costs and ongoing operational costs of the system; taxpayer bills are based on usage. Generally, taxpayers are allowed to include 50% of the total water and sewer charges paid when calculating the circuit breaker property tax payment. This percentage is meant to approximate the portion of the water and sewer use charge attributable to capital debt service.

However, the legislature, in 1993, added a provision to Prop 2 1/2 that allows communities to shift either all or a portion of water and sewer capital costs paid through user charges for service from their water and sewer bill to their real estate tax bill outside the levy limit. Electing communities include water and sewer capital debt service costs as part of the real estate tax bill issued to residents. Communities that have elected this treatment are Arlington, Avon, Hadley, Hatfield, Webster, and Winchester. Thus, in those communities, the amount of sewer and water charges allowed in calculating the credit is already included in these taxpayers’ real estate tax bill.

Betterments may be added if directly connected to either the construction, repair and/or maintenance of a water and sewer system, including sewage treatment plants.

Cost to pump septic tank does not qualify as water and sewer use charge since a private cleaning company performs the cleaning and it is not a charge levied by a city or town.

However, charges from a town sewage treatment facility (town health department) for the processing of septic tank waste and the discharging of it as a liquid is allowed since amount is levied by a city or town.

For renters, the law assumes that 25% of rent goes toward property tax. Accordingly, renters may claim a credit in the amount by which 25% of their annual rental payment is more than 10% of their total income.

When calculating the Circuit Breaker Tax Credit, a taxpayer should base the calculation on actual rent paid during the calendar year regardless of the year for which the payment is applied. For example, in 2012, taxpayer paid 14 months rent, i.e.,

• rent for December 2011 was paid in January 2012,
• rent for January through December 2012 was paid in 2012; and
• rent for January 2013 was paid in 2012.

In this case, the amount of rental payments for purposes of the credit would be all 14 rental payments.

Rental Deduction:

Rent that is used for calculating the credit is also used to calculate the allowable rental deduction.

Rental Payments:

Rental payments are based on actual amount an individual pays in the calendar year regardless of the terms of the lease of the rental unit.

Rental Unit Example: If two individuals sign a lease for a rental unit but one pays all of the rent, then only that individual can use the rent paid during the calendar year for purposes of the credit calculation.

For purposes of the tax credit, a taxpayer’s total income is the taxpayer’s Massachusetts adjusted gross income (Massachusetts AGI) increased by various amounts that may have been or subtracted when originally calculating Massachusetts AGI. These amounts include income from social security, retirement, pension or annuities, cash public assistance, tax-exempt interest and dividends, short-term and long-term capital losses, certain capital gains, income from a partnership or trust not otherwise included in the taxpayer’s Massachusetts AGI. These amounts also include gifts, returns of capital reported on Schedule C and gross receipts from any other source other than the tax credit itself.

Total Income Determination:

• Massachusetts gross income is included in the total income calculation;
• Generally, federal gross income excluded from Massachusetts gross income by specific law, is added back in the total income calculation. Example: Interest from certain U.S. and MA obligations;
• Generally, any amount that is excluded from federal gross income is not added-back in the total income calculation if such amount is not defined as income and is not included in Massachusetts gross income by specific law.
• Subsidies, insurance programs and similar reimbursement programs, etc. are generally not added-back in the total income calculation.

Schedule CB Worksheets — Income Added Back:

• Estate income. CB Worksheet, various — earned income from an estate, e.g. the estate is in probate, or cannot be settled due to a pending lawsuit; any interest income earned from funds left in the account, or rental income earned from rental property that is part of the estate is included. Generally, this income is reported to beneficiaries on a K-1, ),
• Gains included in U.S. Schedule D (not including losses), CB Worksheet, Part 3. Lines 12 -17;
• Interest Income from U.S. and Massachusetts government bonds, notes and bills, CB Worksheet, Part 2. Line 8.

• Cash Public Assistance, Schedule CB, Line 6 — including food stamps and welfare, as well as any other payments received from a government or quasi-governmental agency such as emergency rental assistance due to a fire. Cash public assistance also includes:

• Fuel assistance. if paid directly to the taxpayer, e.g. a one-time emergency check to fill a tank is included. However, if the assistance is paid through a discounted rate program (3rd party beneficiary and individual’s income qualifies for below market rates) the payment is generally considered in-kind assistance and is excluded from the income calculation.

• Estates — one time distributions that have been probated are not included since they are not part of federal gross income;
• Life Insurance Policies — Proceeds payments are not included since they are not part of federal gross income (U.S. Form 712);
• Losses included in U.S. Schedule D;
• Net worth of assets. accumulated earnings in an account i.e. deferred compensation, IRA, etc.;
• Payments, in-kind payments, or monies received that are otherwise not defined as wages, payments in lieu of wages, income, other income, return of capital, or gross receipts;
• U.S. Series E and Series EE bonds — these bonds are considered investment bonds and do not earn interest each year. Instead, the income is recognized federally only at the time the bond matures and the holder cashes it in. Years prior to maturity, there would be no income.

Note: For Schedules C and E, the net profit or loss amount = Massachusetts AGI. The only addback for purposes of calculating total income would be any return of capital.

Total Income Less: Certain Exemptions and Deductions:

This total income figure is also reduced by certain exemptions that are allowed for taxpayers who are at least age 65 by the end of the tax year, for dependents and for blindness, as well as certain deductions reported on Massachusetts Schedule Y, Lines 1 through 10.