Question

Mr. and Mrs. Woodward, an elderly couple with no dependents, have taxable source income of 8,000 and social security income of26,000. They own property assessed at 80,000 (current market value of190,000) and are subject to a property tax rate of 5/100 of assessed value. They each receive an old-age property tax exemption of 500. They are eligible for the state property tax circuit breaker. The relief threshold is 6 percent of total money income; 25 percent of any overload is returned by the state in an income tax credit. The maximum relief paid is600 per couple. What is the total amount of property tax relief that Mr. and Mrs. Woodward are eligible for?

1) $600
2) $500
3) $400
4) $300

Answer 1

Mr. and Mrs. Woodward are eligible for a property tax relief of $240. This was calculated by determining their initial property tax, subtracting exemptions, and applying the state property tax circuit breaker wherein 25 percent of the tax overload above a certain income threshold is returned as a tax credit.

Step-by-step explanation:

In order to calculate the total amount of property tax relief that Mr. and Mrs. Woodward are eligible for, we must follow several steps. First, we calculate their property tax before exemptions. The property is assessed at $80,000 and the tax rate is 5/100, which results in initial property tax of $80,000 * 0.05 = $4,000. Since they each receive an old-age property tax exemption of $500, the total exemptions amount to 2 * $500 = $1,000.

Therefore, after exemptions, their property tax would be $4,000 - $1,000 = $3,000. Now, we use their total money income which is the sum of their taxable source income and social security income, amounting to $8,000 + $26,000 = $34,000. The relief threshold is 6 percent of total money income, which is $34,000 * 0.06 = $2,040. The property tax paid ($3,000) surpassed this relief threshold by $3,000 - $2,040 = $960. This excess is what triggers the circuit breaker tax relief.

Calculating 25 percent of the overload gives us $960 * 0.25 = $240, which is the amount the state will return as an income tax credit. However, since there is a maximum relief of $600 per couple, and $240 is less than this maximum, Mr. and Mrs. Woodward are entitled to a property tax relief of $240.