Q: I am representing an older couple who wish to sell their family home of 50 years. They are concerned about possible major defects in the home, including lead paint and even a failed septic tank. Is there anything I can recommend to this couple to defray the costs associated with the removal of lead paint or the replacement of their septic system, if needed?
A. Yes. In Massachusetts, there are tax credits available for the two issues you mentioned. They are as follows:
Lead Paint
Since 1994, the Commonwealth has allowed property owners to take up to a $1,500 tax credit for de-leading their property. In order to qualify for this credit, the following criteria must be met: 1) a dangerous level of lead in the accessible structural materials of the residential premises is established by a licensed inspector; 2) the owner obtains a letter of compliance from a licensed inspector; and 3) the owner completes a “Massachusetts Schedule LP” and encloses it with the tax return. This tax credit is available to any owner of Massachusetts residential property regardless of whether it is used as the primary residence or of the owner of the property resides in Massachusetts.
When dealing with homes built before 1978, it is important to be up to speed on the lead laws, and review those laws with your client. As an overview, the Massachusetts Lead Law requires that when a property built before 1978 is being sold, the agent must provide prospective buyers with a copy of informational materials prepared by the CLPPP, as well as the “Property Transfer Notification Certification.” It is important that you have the seller sign the disclosure form before the buyer receives it, ideally at the time you take the listing. If the seller does not sign the form until after the buyer, it will be difficult to prove that all information known to the seller about lead paint at the property was provided to the buyer. You should also be sure to attach the copy of the completed disclosure form to the P&S.
Contrary to popular belief, there is no duty on the seller to de-lead prior to transfer if the home is found to contain lead paint. However, if a buyer has a child under the age of six, it is their responsibility to bring the home into compliance. For more information on the Lead Paint laws, visit: http://www.marealtor.com/content/lead_paint.htm
Title V
The current law affords a 40% credit towards the cost of upgrades to their septic system with the maximum credit totaling $6,000. The largest tax credit that may be taken in any year is $1,500. This tax credit is only available to Massachusetts residents for use on their principal residence.
For most properties, a septic inspection must have occurred within two years prior to the transfer (three years when a system has been pumped on an annual basis and pumping records are available). The property owner is generally responsible for obtaining an inspection of the system. The inspection must be conducted by an approved system inspector, and the results must be recorded with the approving authority, which is usually the Department of Environmental Protection (DEP), within 30 days. Prior to the time of transfer of title, however, the parties may contractually allocate responsibility for the inspection provided that such inspection occurs within the specified timeframes. If a Septic Inspection fails, the owner of the system is the required to upgrade a failing system. Often, the buyer and seller work out the financial issues as part of the sale of the property. For more information on Title V, please visit: http://www.marealtor.com/content/title_5.htm
For more information on Residential Property Credits, visit: http://www.mass.gov/dor/individuals/filing-and-payment-information/guide-to-personal-income-tax/credits/residential-property-credits.html
Q: Since the seller’s bought their home 50 years ago, they are expecting to see a large profit at the point of sale. They have expressed concern of their tax liability on this. Although I have recommended that they speak to their accountant, is there a basic rule of thumb that I should know about?
A. Yes. The current Massachusetts law mirrors federal law and allow couples who file a joint tax return to exclude from taxation up to $500,000 of any gain in their home’s value. For single filers, the individual can exclude gains of up to $250,000. This credit has been extremely helpful to homeowners, especially seniors, who have owned their home for quite some time. This exclusion is generally only applicable to a homeowner’s primary residence.
Q: I heard that the Lead Paint Tax Credit, the Lead Paint Tax Credit, and the Capital Gains Exclusion were all at risk of going away earlier this year. Is this true?
A. Yes. In his 2014 budget proposal, the Governor proposed to eliminate the Lead Paint Tax Credit, the Title V Tax Credit, and the Capital Gains Exclusion, but due to the advocacy efforts of REALTORS ® throughout the state, these three critically important benefits of homeownership will remain intact.
The Massachusetts Association of REALTORS® (MAR) Legal Hotline offers Designated REALTORS®, office managers, and other authorized callers access to staff attorneys who can assist members with questions about current state and federal laws and regulations, permissible business practices, and important court rulings affecting real estate practitioners. To take advantage of the Legal Hotline service, members must first complete and sign a Memorandum of Understanding with the MAR Legal Department. Once approved as an authorized caller, MAR members may access the Hotline by: The hours of operation are Monday-Friday, from 9 a.m. to 4 p.m.