Tax Law Blog | IRS Tax Attorneys

New York State yesterday rolled out a mortgage tax credit for first-time home buyers, a federal income tax deduction that can be taken each year they pay interest on the loan.

The program, called the Mortgage Credit Certificate, would allow home buyers to take a dollar-for-dollar deduction of 20 percent of mortgage interest paid, Gov. David A. Paterson and other state officials announced. The remaining 80 percent of the mortgage interest paid for the year will be treated as usual, as itemized tax deductions.

The average homeowner can save about $1,520 per year for the first 10 years, officials said, and as many as 700 borrowers might be able to take the deductions this year.

The state’s mortgage tax credit comes on top of the federal tax credit of up to $8,000 for qualifying, first-time home buyers, defined by both programs as those who have not owned a home for at least three years. But unlike the new mortgage tax credit, the federal home buyer’s tax credit is scheduled to expire at the end of November.
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A new New York state law that makes it easier for residents to eliminate taxing districts won’t help those who want to get rid of a special Town of Union tax that supports two village libraries.

Union attorney Kurt Schrader said Your Home Public Library in Johnson City and George F. Johnson Memorial Library in Endicott are not part of a special library taxing district, which the new law targets.

Instead, the libraries get their funding through a provision in the education law that allows residents to enact a tax through a referendum - which they did in 2004. The referendum passed 8,720 to 6,587.

The distinction is important, because New York State Attorney General Andrew Cuomo’s new law, which passed the state Legislature and was signed by the governor, addresses special districts.

Cuomo said the law was intended to reduce overlapping layers of government which “saddle residents with the nation’s highest local taxes.”

Last year, Union Town Board members moved to place a referendum on the ballot to eliminate library funding completely, but two state courts ruled against the move. Instead, voters last November went on to approve a referendum increasing the tax to $1.54 million from $1.37 million.

Last year, Schrader said Union’s elected officials had the right to ask voters if they wanted to eliminate the special tax, which has been a point of controversy since it was added to property tax bills following the 2004 referendum.

Libraries have fought to keep the funding derived from the special tax because, prior to the referendum, they were at the mercy of government officials who decided how much funding they would receive.

Johnson Memorial Library Director Edward Dunscombe said the new Cuomo law makes it unlikely that the libraries would form a district in the future for fear someone would then use the new law to try to eliminate the district.

In some ways, he said, a library district might be beneficial. For example, a library district has an elected board, unlike the present setup where the mayor appoints the board; and a taxing district is funded with an annual vote, instead of gathering petitions and getting a referendum placed on the ballot to increase funding.

Union Supervisor John Bernardo said even if Cuomo’s law allowed him to abolish the library tax he doesn’t know if he would pursue it.

“We fought the last referendum item (the libraries) put on the ballot. Voters decided they were OK with increasing the amount of extra tax,” said Bernardo.

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