Reader Question: My mother-in-law is 87 years old. My wife was told at work that there was as exemption for property tax in Alabama for senior citizens once you reach the age of 65. Is this correct and is it automatic or do you have to file for this exemption?
Answer: The timing of your question is perfect since property taxes are due between now and December 31st. Unfortunately, there’s good news and bad news. The good news is that if you are age sixty-five or older you are exempt from paying state property taxes. Here’s an excerpt taken directly from the State of Alabama web site:
I AM OVER 65. DO I HAVE TO PAY PROPERTY TAXES?
If you are over 65 years of age, or permanent and totally disabled (regardless of age), or blind (regardless of age), you are exempt from the state portion of property tax. County taxes may still be due. Please contact your local taxing official to claim your homestead exemption.
One of my partners, Michael Wagner, CPA, adds, “You have to proactively claim the deduction and every year return a postcard stating you are over 65 and still own the home.” You need to apply for the exemption through your county tax assessor’s office. Here’s a link to every county: CLICK HERE or enter http://revenue.alabama.gov/advalorem/countyoffices/index.cfm in your internet browser.
The bad news is that you cannot ‘go back’ and get credit for state property taxes paid in prior years when you were eligible for the exemption. In other words, it’s a ‘use it or lose it’ proposition. If you know someone age sixty-five or older, be their hero and remind them of this opportunity.
Reader Question: I hold an actively managed mutual fund that I bought years ago. It has a high expense ratio and I would like to trade it for an equivalent ETF that tracks the same index. I have significant profit in this investment. Is there a way to avoid the taxes in a trade?
Answer: If it were real estate you could do a like-kind exchange and avoid taxes but there’s no such equivalent rule for stocks. A couple of possibilities are:
- Gift highly appreciated shares to a charity or donor advised fund. If you are already giving to charities or your religious organization each year, you could gift several years worth of contributions to a donor advised fund by transferring the appreciated securities (held for more than twelve months) in this calendar year therefore creating an income tax deduction. Use the cash you would have given to the charities (plus your net tax benefit) to purchase the low cost ETF. For example, say you typically give $10,000 per year to charities. Instead of using cash, gift $30,000 worth of highly appreciated securities to your DAF before year-end in order to fund three years’ worth of charitable gifts. You’ll get a tax deduction this year for $30,000 (deduction limited to 30% of your adjusted gross income with any excess carry-forward for up to five years). Your DAF will sell the securities and pay no taxes. You take the cash you would have used to give to charities plus your net tax savings and buy the low cost ETF thus getting Uncle Sam to help solve your problem! Over the next three years you can direct your DAF to make your gifts to your various charities.
- Use a Charitable Remainder Unitrust (CRUT). This is similar to the first strategy except that you take an annual income for life; get a partial tax deduction; and the charity doesn’t receive the gift until you die.