STAR Property Tax Credit: Make Sure You Know The New Income Limits

NewsroomTax Strategies
Written By gbfadmin

The STAR Credit is a great way to reduce your property taxes in New York.  If you are over the age of 65, it gets even better with the Enhanced STAR Credit.  But you have to know the income limits associated with the credit otherwise you could unexpectedly lose the credit which could cost you thousands of dollars in additional property taxes.  They made some big changes to the credit that a lot of homeowners are not aware of. In this article we will review: 

  • The income limits for the STAR Credit

  • Eligibility requirements for the Enhanced STAR Credit

  • How much money the STAR credit saves you

  • The most common mistakes that people make that disqualify them from the credit

  • The changes that were made to the property tax credit

STAR Property Tax Exemption

Let’s start with the basics. STAR stands for School Tax Relief.  It’s a partial exemption from school taxes for your primary residence.  There are two different STAR programs: 

Basic STAR

Enhanced STAR 

You Have To Apply For The Credit

You have to apply for the credit to receive it. It’s not automatic. Also, if you turn 65 this year and you want to further reduce your property taxes, there is a special application process for the Enhanced STAR Credit which requires you to enroll in the annual Income Verification Program (IVP).  We will cover this in more detail later on in the article. 

How Does The STAR Credit Work

The STAR credit exempts a specified dollar amount from the assessed value of your house prior to the calculation of your school tax bill.  Here are the current exemption amounts: 

Basic STAR:           $30,000

Enhanced STAR:  $65,000 

The actual dollar amount that you save in school taxes will vary based on where you live in New York State.  But if you live in a $300,000 house, you qualify for Basic STAR, and your school taxes before the STAR’s credit are $7,000.  It could save you around $700 per year in school taxes. If you qualify for the enhanced STAR, you can more than double that savings number.  In a high property tax state like New York, every little bit helps. 

Income Limits For The STAR Credit

Here is a table from NYS Department of Taxation and Finance that summarizes the eligibility requirements for the Basic STAR and Enhanced STAR credit: 

Requirement #1: It must be your primary residence. The credit does not apply for rental properties or second homes.

Requirement #2:  To qualify for the Enhanced STAR, one of the homeowners must be age 65

Requirement #3: The income limitations.  We see fewer issues with the Basic STAR since the income limit is $500,000.  We see a lot more issues with the Enhanced STAR credit with the income limit at $86,300.  Mainly because when you add up social security, pension payments, and required minimum distributions from IRA’s, you have homeowners that flirt with that income limit on a year by year basis. Crossing the income line would drop you back into the Basic STAR program which will most likely result in an unfriendly property tax surprise.

Income Calculation

The eligibility for the 2019 STAR credit is actually based on your income from 2017.  You can reference your 2017 federal and state tax returns against the table listed below: 

Enhanced STAR Credit

Once you or your spouse turn age 65, you are then eligible to apply for the Enhanced STAR program.

Unlike the basic STAR program, the Enhanced STAR program required homeowners to file renewal applications with their local assessor each year to remain in the program. Under the new rules, new applicants are required to enroll in the Enhanced STAR Income Verification Process.

The application deadline is typically March 1st if you are filing at the county level but it can vary from county to county.   You should contact your assessor to verify the application deadline in your area.  The good news about enrolling in the Enhance STAR Income Verification Program is you only have to do it once.  Once enrolled you will receive the Enhanced STAR credit each year as long as your income is below the required threshold.

Common Mistakes With The Enhanced STAR Credit

Since the income threshold for the Enhanced STAR program is much lower than the Basic STAR program this is where we see homeowners get into trouble.  For most retirees, their income is relatively the same from year to year. However, there are frequently one-time events that occur that can push a retiree’s income higher for a given year.  Not only do they end up with a large tax bill when they file their taxes but they also find out that they lost the Enhanced STAR Credit for that year. Double ouch!! 

Here are the most common income events that retirees have to watch out for: 

  • Capital gains and dividends from taxable investment accounts

  • Taking larger distributions from IRA’s or pre-tax retirement plans

  • Age 70 ½ - Required minimum distributions start from IRA’s

  • Receive an inheritance (some sources can be taxable)

  • Sell real estate or land other than the primary residence

  • Surrendering a life insurance policy

  • Part-time income

  • The year you turn on social security benefits

If you experience financial events that are expected to increase your taxable income for a given year, you should work closely with you financial advisor or accountant during those years because there may be ways to reduce your income to maintain the Enhanced STAR credit with some advanced planning. 

Changes To The STAR Credit

New York made some significant changes to both the Basic STAR and the Enhanced STAR credit that not many homeowners are aware of.  The amount of the credit did not change but the methods for applying for and receiving the credit did change.

If you were receiving the Basic STAR credit before and you have not moved since 2016, there is nothing that you have to do.  Everything will continue to operate the same.  However, if you move or if you are new homeowner, the STAR process will be different.  Under the old method, you would simply see a deduction for your STAR credit on your school tax bill.   Going forward, when you buy a new house, you will have to pay your full school tax bill, and then New York will mail you a physical check for your STAR credit.  In order to receive your check in September, you must register for the Basic STAR program through the state Department of Taxation and Finance by July 1st.

After July 1st, you can still apply for the STAR credit, and the state will provide you with a check, but you may receive the check after September.   The same manual check process is applicable with the Enhanced STAR program as well.

If you were receiving the Enhanced STAR and you have not moved, New York is allowing those homeowners to continue to file their renewal applications with their local assessor each year without having to enroll in the new Enhanced STAR Income Verification Program.  However, if you move, you will have to enroll in the Income Verification Program in order to remain in the Enhanced STAR Program.

Michael Ruger

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

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