A New STAR is Born: The New York’s School Tax Relief program (STAR) Exemption by Christopher Byrnes and Joseph Packard

New York’s School Tax Relief program (STAR) was enacted by governor George Pataki in 1997 as a way of reducing the school tax burden of owner-occupied residential properties throughout the state. From inception, this program was implemented in the form of a tax exemption (i.e., a reduction in the assessed value of the property) which resulted in reduced school tax bills. The state would then reimburse the school districts for the revenue lost due to the exemption.

This program was, and remains, limited to a homeowner’s primary residence. Beginning with the 2011/12 school year, the State further restricted the availability of Basic STAR to households with income of less than $500,000.

Changes to the School Tax Relief (STAR) Program

Legislation enacted by New York State as part of its 2016/17 budget has now drastically changed the administration of the STAR property tax benefit. Instead of receiving a reduced school property tax bill, anyone who changes their STAR-qualified primary residence (i.e., first-time homeowners, or homeowners who relocate) will now instead receive a personal income tax credit in the form of a rebate check from New York State. Homeowners who lived in their house on the relevant local tax status date (January 2 in Nassau County / March 1 in Suffolk County) for the 2015/16 tax year, and who received the STAR exemption on that tax bill, are unaffected by this legislation, and will continue to receive the benefit as long as they qualify.

Voluntarily Switching from the Exemption to the Credit

Homeowners who are currently benefitting from a reduction in their school property tax bill due to the STAR exemption who wish to switch to the STAR tax credit may do so by renouncing the STAR exemption and registering for the STAR tax credit. In order to renounce the STAR exemption, they must fill out Form RP-496 (available at www.tax.ny.gov/forms) and file it with New York State Department of Taxation and Finance.

Note: Renunciation of the STAR exemption is irrevocable; thereafter only the rebate check under new STAR tax credit program will be available.

Value of STAR Benefit

The value of the STAR benefit does not change under the new legislation. In most instances, qualifying homeowners will receive a rebate check equal to the amount of the STAR savings that appears on longtime homeowners’ property tax bills. In certain unusual circumstances where the homeowner’s annual school taxes are less than the STAR benefit amount, the homeowner will receive a check equal to the amount of the school taxes.

Application Procedure

The application process is a radical departure from the old system. Instead of filing a paper application with your local tax assessor on or before the local tax status date, new homeowners must register for the benefit by calling the New York State Department of Taxation and Finance, or online through its web portal. There is a soft deadline of July 1, which, if met, guarantees that the homeowner will receive the rebate check by September 30. Homeowners can still register after July 1, up to three years after the income tax filing deadline for the year to which the credit applies (e.g. homeowners have until April 15, 2020 to apply for the 2016/17 STAR rebate). This should significantly reduce the number of homeowners who miss out on STAR benefits as a result of purchasing their home after the local tax status date.

Homeowners do not need to re-register every year. Once registered, the State will review and determine the homeowners’ eligibility annually. If, however, the homeowner changes the recorded deed while still retaining an ownership interest, the homeowner must re-register. For example, if the existing homeowner adds his or her spouse to the deed, or the property is transferred into a trust, the homeowner must then register for the STAR tax credit.

Effect on Enhanced STAR

Under the new legislation, the State will automatically determine whether the homeowner qualifies for Basic STAR or Enhanced STAR. This is a significant change from the old system, where a homeowner was required to file a separate application for Enhanced STAR if qualified.

As with Basic STAR, homeowners who were previously receiving Enhanced STAR are not affected by this legislation. If they are enrolled in the income verification program, the State will continue to make an annual determination on eligibility and notify the local assessor, who will continue to implement the benefit as an exemption on school tax bills. If they are not enrolled in the income verification program, they must continue to file annual renewal applications with the local assessor. If a homeowner has been receiving a Basic STAR exemption since 2014 or earlier and turned 65 in the past year, he or she can apply for Enhanced STAR with the assessor, without the need to register with the State.

Void Applications

Homeowners who applied for STAR with their local assessor after August 1, 2015 may have received notification that the exemption was granted for the 2016/17 tax year. Under the new legislation, however, such applications are void. Any homeowner that is affected by this must register with the state to receive their rebate check.

Advice for Realtors

The new law has implications for real estate brokers as well. Since the tax benefit is now a personal income tax credit (and not a property tax exemption) the distinction “Taxes w/ Basic STAR” that frequently appears in MLS listings no longer exists, but could be replaced with “STAR Rebate Amount.”

Christopher Byrnes and Joseph Packard are Associates at Schroder & Strom, LLP in Mineola, N.Y.