Articles Posted in Tax Law

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Thumbnail image for tax appeal.jpgA common question is how can property taxes be lowered? The answer is to file a tax appeal. In the current depressed real estate that the value of your home is often dramatically lower than the town has assessed it and you should appeal that assessment. In this economic climate, this is important to explore. A property tax appeal can drastically reduce your property tax payments. You can only appeal your tax assessment, i.e. the value the town assigns your property; you cannot lower your property tax rate.

To evaluate whether your property tax assessment is too high, first determine the fair market value of your property. Recent sales of similar properties in your neighborhood provide a good idea. Then you “equalize” your assessment to the fair market value of your property using your municipality’s “equalization ratio.” The equalization ratio is used to adjust for town-wide market fluctuations over time. Apply the equalization ratio to your assessed value to find the value the municipality has determined is the fair market value of your home (the “equalized market value” – this is usually not the same as the unequalized assessment in your tax bill). If the fair market value of your property is more than 15 percent less that the equalized market value, you should move forward with a tax appeal.
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A qualified personal residence trust (QPRT) offers an opportunity for homeowners to minimize or avoid federal and New Jersey estate taxes. A QPRT allows a homeowner to transfer ownership of a primary or vacation home to a “grantor trust,” while keeping the right to live there for a specified period of time. When that specified time ends, ownership passes outright to the homeowner’s children or whoever is named as the remainder beneficiaries.

When you transfer your home into a QPRT, you make a gift to the beneficiaries which is subject to gift tax. The value of that taxable gift is not the full fair market value of the home, as it would be with an outright transfer. The value is discounted. In the current real estate market values are quite low, adding to the benefit of the QPRT. The gift is also discounted to reflect that you have retained an interest (the right to live in the home for the specified term). Internal Revenue Service tables and current interest rates are used to determine the amount of the discount. The federal gift tax exemption is currently $5,120,000.00 and you can utilize a portion of that exemption and pay no gift tax. As New Jersey does not have a gift tax, you can transfer the home without incurring any New Jersey gift tax.
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