Can You Totally Not Pay Property Taxes After Deferral? The Unvarnished Truth

No, you cannot totally avoid paying property taxes after deferral. Property tax deferral programs offer a temporary reprieve, not a permanent escape. They essentially act as a loan against your property, with the deferred taxes accumulating interest until the loan is repaid. Think of it as kicking the can down the road, not eliminating the can altogether.

Understanding Property Tax Deferral: A Deep Dive

Property tax deferral programs are designed to help specific groups of homeowners – typically seniors, individuals with disabilities, and sometimes active military personnel – stay in their homes when they face financial hardship. These programs allow eligible homeowners to postpone paying their property taxes, but the delayed taxes become a lien against the property. This means the government has a legal claim on your home’s equity, which will need to be settled eventually.

How Deferral Works

The mechanics are quite straightforward: Instead of paying your property taxes each year, you apply to your local government (usually the county or state) for a deferral. If approved, the government pays your property taxes on your behalf, and the amount paid is added to your deferred tax balance. This balance accrues interest at a rate determined by the specific program.

The Inevitable Payback

The deferred taxes, plus accrued interest, must be repaid when certain events occur, such as:

• Sale of the property: This is the most common trigger. The deferred taxes and interest are paid from the proceeds of the sale.
• Transfer of ownership: If you transfer the property to someone else, the deferred taxes usually become due.
• Death of the homeowner: In many cases, the estate of the deceased homeowner is responsible for repaying the deferred taxes.
• Cessation of eligibility: If you no longer meet the eligibility requirements for the program (e.g., you move out of the property, your income exceeds the program limits), the deferred taxes may become due.

Debunking the “Free Ride” Myth

The allure of deferring property taxes is understandable, especially when finances are tight. However, it’s crucial to understand that it’s not a “get out of jail free” card. It’s more akin to using a credit card; you borrow money now and pay it back later with interest. The longer you defer, the larger the balance grows, and the more it will cost you in the long run.

The Interest Factor

The interest rates on deferred property taxes can vary significantly depending on the state and the specific program. Some rates are relatively low, while others can be comparable to credit card interest. This is a crucial factor to consider when deciding whether deferral is the right option for you. Compounding interest over many years can significantly inflate the total amount owed.

The Lien on Your Property

Remember, the deferred taxes create a lien on your property. This lien takes precedence over most other debts, except for the first mortgage. This means that if you default on your mortgage and your property is foreclosed upon, the deferred taxes will be paid before other creditors receive any money. This can also affect your ability to refinance your mortgage, as lenders may be hesitant to approve a loan with a pre-existing lien.

Weighing the Pros and Cons

Before jumping into a property tax deferral program, carefully weigh the pros and cons.

Potential Benefits

• Allows you to stay in your home: The primary benefit is that it allows eligible homeowners to remain in their homes during times of financial difficulty.
• Provides short-term financial relief: It can free up cash flow for other essential expenses.
• May offer lower interest rates than other forms of borrowing: Depending on the program, the interest rate may be lower than credit cards or personal loans.

Potential Drawbacks

• Accumulation of debt: The deferred taxes, plus interest, create a growing debt burden.
• Risk of losing your home: If you cannot repay the deferred taxes when they become due, you could face foreclosure.
• Impact on your estate: The deferred taxes will reduce the value of your estate.
• Limits future financial options: The lien on your property can make it difficult to refinance your mortgage or obtain other loans.

FAQs: Your Guide to Understanding Property Tax Deferral

Here are 12 frequently asked questions to further clarify the complexities of property tax deferral:

1. Who is typically eligible for property tax deferral programs?

Generally, senior citizens, individuals with disabilities, and sometimes active military personnel are eligible. Specific eligibility requirements vary by state and local jurisdiction. Income limits and residency requirements are common.

2. How do I apply for property tax deferral?

Contact your local county tax assessor’s office or the relevant state agency. They will provide you with the application forms and instructions. You’ll likely need to provide proof of age, disability, income, and residency.

3. What happens if I sell my home after deferring property taxes?

The deferred taxes, plus accrued interest, must be paid from the proceeds of the sale. The title company will typically handle this during the closing process.

4. Can I still get a mortgage if I have deferred property taxes?

It can be more difficult. Lenders may be hesitant to approve a mortgage with a pre-existing lien on the property. You may need to repay the deferred taxes before refinancing or obtaining a new mortgage.

5. What is the interest rate on deferred property taxes?

The interest rate varies depending on the state and the specific program. It can range from relatively low rates (e.g., a few percentage points above the prime rate) to rates comparable to credit card interest.

6. What happens if I die while deferring property taxes?

The estate of the deceased homeowner is typically responsible for repaying the deferred taxes. This is usually handled during the probate process.

7. Can I make partial payments towards my deferred property taxes?

Some programs allow you to make partial payments to reduce the outstanding balance and the amount of accrued interest. Check with your local government or the administering agency to see if this is an option.

8. Are there any alternatives to property tax deferral?

Yes, consider options like property tax exemptions, installment payment plans, and applying for financial assistance programs. Contact your local government to learn about available alternatives.

9. What if I move out of my home while deferring property taxes?

Generally, moving out of the home terminates your eligibility for the deferral program, and the deferred taxes become due. Check the specific terms of your deferral agreement.

10. How does property tax deferral affect my credit score?

Deferring property taxes does not directly affect your credit score, as it’s not a traditional loan or credit account. However, failing to repay the deferred taxes when they become due could lead to foreclosure, which would severely damage your credit.

11. Is property tax deferral right for everyone?

No. It’s a financial tool that should be used cautiously. Carefully consider your long-term financial situation, your ability to repay the deferred taxes, and the potential impact on your estate.

12. Where can I find more information about property tax deferral programs in my state?

Contact your local county tax assessor’s office, the state department of revenue, or a qualified financial advisor. They can provide you with detailed information about the specific programs available in your area and help you determine if deferral is the right option for you.

The Bottom Line

Property tax deferral can be a lifeline for eligible homeowners struggling to pay their property taxes. However, it’s not a free pass. It’s a loan that must be repaid, often with interest. Before deferring your property taxes, carefully consider the long-term implications and explore all available alternatives. Understanding the details and weighing the pros and cons will help you make an informed decision that protects your financial future. Remember, knowledge is power, especially when dealing with complex financial matters like property tax deferral.