For some retired teachers, 2012 property taxes were a little bit higher

Property taxes

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Property taxes went up this year for some Alabama seniors and disabled persons who had previously been exempt.

Before May, the permanent and totally disabled, as well as seniors over the age of 65 with less than $7,500 in federal taxable income, paid no property tax on their primary residence as long as they filed proper homestead exemptions.

But that was problematic, says Rep. Jack Williams, R-Vestavia Hills, because it allowed, for example, a very high income earner with a disabled spouse to avoid property taxes altogether. Williams sponsored the bill that now caps income for such households at $12,000 annually. Families with more income can still claim the state’s regular homestead exemption.

The new law also changes the tax bill for seniors. All Alabamians over the age of 65 remain exempt from state property taxes, but property taxes assessed at the county level will change, based on income.

Before the passage of the new law, Alabamians over the age of 65 were broken up into three tiers:

- Those with less than $7,500 on their federal income tax returns were exempt from all ad valorem taxes.

- Those with more than $7,500 on their federal returns, but less than $12,000 on their state returns, received a $5,000 homestead exemption against county property taxes.

- Those with more than $12,000 in income reported on their state returns received the standard homestead exemption of $2,000 against county property taxes.

Now, there’s just one number that matters. Seniors under $12,000 on their federal returns are fully exempt, while seniors above that mark on the federal return receive the standard homestead exemption.

The change helps many low-income seniors by increasing the cap for full exemption. But it hurts one very specific set of older Alabamians: those who receive income from a defined benefit retirement plan, such as the Alabama Employees’ Retirement System. The reason: income from such plans is exempt from state income taxes, but not federal income taxes.

Prior to the new law being passed, those seniors with less than $12,000 on their state returns received a $5,000 exemption on their county property taxes. But some of those seniors might be over the $12,000 threshold on their federal return, reducing their exemption from $5,000 to $2,000.

In short, the law makes complex changes to a complicated issue. That has motivated some legislators, including Rep. Williams, to take another look at its final wording.

“We’re going to go back and revisit this,” Williams says.

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