Filing for 30% Tax Credit

As you may recall, I have written about the not-so-special legislative session in some of my recent articles. For the past week I have been researching the implementation of LB 34, the so-called property tax relief bill that was passed during the special session of the Legislature in August. As I have read and reread that legislation, it has become apparent to me that the legislature, including me, missed an important piece about how that bill would be implemented.

The special session started with the Governor's proposal, which was LB1. I spent the better part of a day reading the 144 pages of that bill, making notes, and jotting down questions that I had about it. My work turned out to be a waste of time because before LB1 advanced to the floor it was changed with a completely new bill, LB9.

My staff and I were busy trying to understand the ramifications of LB9, which was 120 pages long, when it was suddenly withdrawn and replaced with yet another bill, LB34. LB34 became the bill that would finally pass in the Legislature and make your property tax relief dollars go directly to the schools, so you would not have to claim the 30 percent credit any more on your income tax return.

When LB34 was being debated on the floor of the Legislature, I failed to catch some very important language in the bill, which removed the opportunity for taxpayers to collect their 30 percent property tax rebate for the taxes they paid to the public schools for the year 2023. According to the language of the bill, property tax credits will no longer be available as of January 1, 2024.

Whether property owners paid their 2023 property taxes personally or through their escrow accounts in 2024, does not matter, because neither one will be able to collect the 30 percent property tax credit allotted to them for the year 2023.

The loss of those property tax credits will result in the State retaining the credit in the State's general fund. Last year those property tax credits added up to $565 million. The State of Nebraska will now keep those property tax credits from 2023 and use that $565 million to fund the reduction in property taxes planned for 2024. So, those paying property taxes are funding their property tax relief for 2024 with their lost credit from 2023.

When I inquired about how the State of Nebraska intends to make up for these lost property tax credits from 2023, the response I received was not very convincing. The State wants the public to believe that the reduction in property taxes that will take place next year for the tax year of 2024 somehow makes up for the loss of the property tax credit that taxpayers were denied for their 2023 property taxes.

I spent several hours with the budget office trying to explain to them how the property tax credit for 2023 will be forever lost. They were not convinced. Because the State plans to keep the $565 million owed to the taxpayers from their 2023 property taxes, the taxpayers, unbeknownst to them, will be funding their own property tax reduction for 2024.

I regret that I did not catch this mistake before LB34 was passed in the Legislature during the special session. Nevertheless, when you file your income taxes next spring, be prepared, because you will not be able to claim the same 30 percent property tax credit that you have received in the past. So, your taxes for 2023 will be much higher than they were in 2022.

Removing the tax credit for 2023 amounts to a retroactive property tax increase. The State is increasing each person's taxes in 2023 in order to give them a property tax decrease in 2024. There are only two ways to make the taxpayer whole again: The State could allow each taxpayer to claim the credit for their 2023 property taxes when they file their income tax return in 2025, or the State could double the discount in property taxes for 2024 to make up for the credit loss in 2023.

The goal of the not-so-special session was supposed to be about increasing property tax relief, not taking property tax relief away from those who were already getting it and giving it to those who weren't.