Author: Jothy Narendran - Partner, Jaspan Schlesinger LLP 7/28/2016
Although the New York State School Tax Relief ("STAR") program, which was started in 1997, continues to provide property tax relief to New York State's homeowners, recent changes have been made to the program by Governor Andrew Cuomo and the New York State Legislature as part of the recent New York State budget deal. Ultimately, the changes will impact how certain homeowners will apply for STAR and receive their benefit; however, there will be no change in the amount of the STAR credit homeowners receive.
There are two different credits available under the STAR Program: Basic STAR and Enhanced STAR. Eligibility for Basic STAR depends on residency and income. Households with a combined income under $500,000 are eligible for Basic STAR as long as the property is the primary residence of at least one owner. Qualified applicants receive an exemption from the first $30,000 of the full value of their primary residence from school taxes. Enhanced STAR imposes an additional age requirement. Homeowners 65 and older with a combined income under $86,000 receive a larger tax break; the first $65,300 of their home value is exempt from school taxes. Again, the property must be the primary residence of at least one owner.
The recent changes to the program will be put into effect starting with the 2016-17 tax year, and are discussed in greater detail below.
STAR now requires "new" applicants to register with the New York State Tax Department in order to receive the tax credit; previously, "new" applicants applied for STAR at the county level with their county's tax assessor's office. New York State considers STAR applicants to be "new" if (i) they purchased their home between May 1, 2014 and August 1, 2015 and they purchased their home after their city's 2015 respective STAR application deadline or did not apply for the STAR exemption by such deadline, or (ii) they purchased their home after August 1, 2015. "New applicants" that qualify for both Basic and Enhanced STAR benefits do not need to register separately for the Enhanced STAR benefit once they have registered to receive the Basic STAR benefit. The above change does not apply to homeowners who purchased their home prior to May 1, 2014 and are currently receiving the STAR exemption.
The new STAR program will continue to provide much-needed property tax relief to New York State's homeowners, but will modify how qualified STAR applicants receive their benefit. "New" applicants who qualify will receive a check from the State in the amount of the STAR credit. Prior to the recent changes, the STAR credit was received by homeowners in the form of a straight property tax exemption. However, the dollar value of the new credit will be equivalent to the property tax exemption previously received and there will be no change to the amount of STAR credit available to qualified applicants. It is important to note that this change may impact how certain homeowners will need to prepare their personal income tax returns. Homeowners who itemize their deductions will likely need to subtract the STAR credit received (in the form of a check) from the real estate taxes that have been paid if the homeowner is claiming a real property tax deduction, as the homeowner's property tax bill has been effectively reduced by the amount of the STAR credit received.
According to Governor Cuomo's budget spokesman, the changes to STAR were made to, "achieve consistency with how other state tax cuts are provided." The State also hopes that the recent changes will reduce abuse of the program, i.e. people receiving a STAR credit on several homes, and people receiving a STAR credit even when they exceed the income threshold. The recent changes are expected to save New York State approximately $180 million a year once the STAR program is fully implemented in 2018. Governor Cuomo's administration has also argued that the new STAR program will streamline the process of getting STAR credits to qualified homeowners.