Massachusetts Lawyer Blog

This post follows Part One and involves an email exchange with someone moving out of Massachusetts who had a question about Title V Tax Credits. Real estate issues for MA buyers or sellers can be tough enough and can be even more complicated when dealing with a Title V issue.

Here's what was asked of me next...

EMAIL QUESTION #2

Thank you - that is quite helpful - on a Friday night, no less!

Unfortunately, if I am understanding you correctly, it’s not great news. Do I understand correctly that unless I owe, say, $1500 in taxes a year for some work I do in MA after we leave, this credit is going to do me no good?

What if I somehow owe $500 in a coming year? Would I receive a refund of $1000?
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RESPONSE 2

Sorry, but it appears you are right about the news not being so great for you. After your first $1,500 you would have $4,500 ($6,000 - $1,500) in a theoretical credit bank (which can be used to a maximum of $1,500 per year). If the credit exceeds the tax due, the excess credit may be carried forward for up to five succeeding tax years (this was the result of a change in the law as it used to be 3 years).

To answer your question, if you only owed $500 in a tax year, then you would not receive a refund of $1,000. You would use the $500 credit, but you would need to carry the remaining credit forward for the next five years. Additionally, unlike other credits which can be sold or transferred, this one can’t.

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DOR discusses the Title V Tax Credit at their site and offers the following Bulletin on Septic Systems as well as TIR 99-5: The Title 5 Credit and Federally Mandated Sewer Connections and TIR 97-12: Personal Income Tax Credit for Failed Cesspool or Septic System Title 5 Expenditures. These resources may help place the issues in context.

From DOR:

Repair or Replacement of Failed Cesspool or Septic System Credit (Title V)

Any owner of residential property located in Massachusetts who is not a dependent of another taxpayer and who occupies the property as his or her principal residence is allowed a credit for the expenses incurred to:

• repair or replace a failed cesspool or septic system in compliance with the sewer system requirements of the State Environmental Code Tile V as promulgated in 310 CMR 15.000 et seq., by the Department of Environmental Protection in 1995; or
• connect to a municipal sewer systems pursuant to a federal court order, administrative consent order, state court order, consent decree, or similar mandate.

Qualified expenses incurred to bring a failed system into full compliance may include one or more of the following:

• an upgraded system;
• an alternative system;
• a shared system; or
• a connector to a sewer system.