Property Tax Deferral: Hidden Gem?
Property tax deferral programs are often kept somewhat secret, and are far less popular than reverse mortgages. These deferral programs can cost states and counties current tax revenue, which is why some jurisdictions avoid advertising these programs extensively. However, tax deferral programs can be a much more attractive alternative to reverse mortgages in certain situations.
Like a reverse mortgage, a property tax deferral gives the borrower a financial benefit that the borrower (or the borrower’s estate) must repay when the home is sold or when the borrower passes away. This financial benefit is a deferral of property taxes, rather than a direct payment to the borrower.
Tax deferral programs are generally only available to people above a certain age; some states allow tax deferral for those 61 and older, and others start at 67 years and older. Certain other groups, like veterans and those with disabilities, are often allowed to participate in tax deferral programs as well. Usually, you must have owned your home for a certain number of years before you will qualify.
Reverse mortgages have significant upfront costs and complexity, but a property tax deferral is much cheaper and more straightforward. The complexity of a property tax deferral comes from the wide variation of programs between states and counties. State laws surrounding tax deferral programs are constantly changing, especially after the pandemic. However, if you find that your local jurisdiction offers a property tax deferral program, it is usually easier and cheaper to obtain than a reverse mortgage.
In some states, like Oregon, the state will pay your property taxes to the county for you, so your deferred taxes would ultimately be paid back to the state. In Massachusetts, the deferral program is between you and your town or city. Thus, the state is not paying the town on your behalf; the town must wait until you pass away or sell your home to receive tax payment.
Deferred tax payments generally accrue interest that must be paid back. In Massachusetts, the interest rate in some towns is 8%, and in other towns is as low as 1%. As you can see, the benefits of these programs can vary widely.
Since this is just a tax deferral, the amount of money you will free up will be significantly less than a mortgage. This may be perfect for those who are not comfortable with the responsibility and expense of a reverse mortgage, and who need a smaller amount of money.
If you want to free up funds using your home, and are uncomfortable with a reverse mortgage, it is worth checking with your state, county, or town to see if any deferral programs exist.
The states listed below currently offer some sort of tax deferral program, though this is not always available statewide. This list is ever-changing, so be sure to check with your local state, county, or city government website to see if you might qualify.
States with Tax Deferral Programs in 2022:
Colorado
Washington DC
Florida
Idaho
Chicago
Massachusetts
New Hampshire
Oregon
South Dakota
Virginia
Washington
Wyoming
Property Tax Deferral
