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Hatching a Nest Egg

Lawmakers consider a tax freeze for homeowners. But there are just a few catches.



Tennessee state senator Mark Norris would like to give you a tax break on your home, just like the fat cats and the corporations get on their businesses.

And if the Shelby County Commission and the Memphis City Council are willing, you just might get it next year.

The catch is - well, actually, there are quite a few catches in this so-called senior citizen homeowner tax freeze. But if you're 65 years old or soon will be and expect to stay in your home, it's well worth looking at.

"Your nest egg should not become your albatross," says Norris, an attorney and former Shelby County commissioner who can turn an apt phrase.

In the long run, say 10-15 years, the freeze could be something like the Tennessee Education Lottery, with the winners being old folks instead of college students. Don't expect to save hundreds of thousands of dollars, like the businesses that get tax freezes for 10-15 years. But seniors could realistically save several thousand dollars, especially if home values appreciate and elected officials continue to raise property taxes as they have over the last 20 years.

In November 2006, Tennessee voters overwhelmingly approved an amendment to the state constitution. Many voters probably thought they were automatically giving themselves tax relief, but that's not how it works. That was only Step One.

In the 2007 legislative session, lawmakers led by Norris enacted the Property Tax Freeze Act. It allows the legislative body of any county or municipality to adopt the freeze. That is Step Two.

Step Three remains to be taken in Greater Memphis. In July, Nashville (David-son County) became the first city to sign up. Norris hopes Memphis and Shelby County will follow Nashville's lead.

That's the background. So what's it worth?

Not a lot, at least at first. To be eligible, the homeowner's household income can't exceed a maximum standard for each county. In Memphis and Shelby County, the current standard is $31,549. Add your Social Security, dividends, and part-time work income and you could easily exceed that, especially if you are married.

Norris is aware of that, and not happy.

"I didn't want this to be a low-income program," he says.

He originally wanted to set the standard at $50,000, but he bowed to political realities. Governments, you see, don't like to have their revenue streams capped, and in Tennessee, which has no state income tax, property taxes and sales taxes are the biggest streams. So the cap, which is subject to change, was set at the median income of all older residents in each county, based on census figures.

There's more in the fine print. Norris says Social Security payments could possibly be excluded; even lawmakers were uncertain on that point, he said in August. In that case, the percentage of eligible seniors, currently estimated at 58 percent, would rise considerably to include, among others, more affluent suburban residents of Collierville (where Norris lives) and such places. The income ceiling could also change.

"This is a work in progress," Norris says.

Property taxes can rise for two reasons - higher taxes and higher appraisals. The new law freezes property taxes at the current level, no matter what happens to your appraisal or your tax rate. For example, if you now pay $3,736 in city and county taxes on your $200,000 home, that is all you would pay from now on unless you improve the house or sell it.

The idea of a senior homeowner tax freeze was first proposed in Tennessee in 1979. Had it become effective soon after that, Memphis and Shelby County seniors would not have felt the impact of several future tax hikes and reappraisals. The 65-year-old owner(s) of a $50,000 home in Memphis in 1987 (yes, there once were such things before county assessors caught up with inflation) who stayed in it 20 more years until they were 85 would have paid just $628 a year in property taxes. Instead, if that house is now on the assessor's books at $200,000, they pay $3,736.

A difference of $3,108 a year is some serious savings. 

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