Property Tax Relief Frequently Asked Questions (Senate Bill 2032)
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General
Q: What is the relief provided?
Q: How do I claim the income tax credits?
Q: On what years’ income tax returns are the income tax credits allowed?
Q: What form should I use to calculate my property tax relief credit?
Q: What information do I need to calculate my credit?
Q: My credit is more than my income tax. What happens to the unused credit?
Q: I own property jointly with my sister. How do I figure my credit?
Eligible Taxpayers
Q: Who is eligible to the income tax credit for residential and agricultural property?
Q: Who is eligible to the income tax credit for commercial property?
Q: Can I qualify for both income tax credits?
Q: Is a tax-exempt organization eligible for any property tax relief?
Q: Is a passthrough entity, such as a partnership, eligible for the income tax credits?
Q: Is a trust or estate eligible for the income tax credits?
Q: Is a bank or similar financial institution eligible for the income tax credits?
Eligible Property
Q: How do I know how my property is classified for property tax purposes?
Q: Are mobile home taxes eligible for the income tax credits?
Eligible Property Taxes
Q: What years’ property taxes are used to calculate the income tax credits?
Q: Are special assessments eligible for either income tax credit?
Form ND-3
Q: I have completed the Form ND-3. Do I file it with the county?
Q: I am filing Form ND-3. How long does it take to receive the property tax relief certificate?
Miscellaneous
Q: Should I change my North Dakota withholding or estimated payments?
Q: Is a grantor trust eligible for the income tax credits?
General
Q: What is the relief provided?
A: The property tax relief passed by the 2007 North Dakota Legislature is provided in the form of two income tax credits: the residential and agricultural property income tax credit and the commercial property income tax credit.
- Your primary residence, whether owned or leased, must be located in North Dakota.
- The credit is allowed only on property you own.
- The property is classified as residential or agricultural for property tax purposes.
- The property is located in North Dakota.
- You are required to file a North Dakota income tax return.
- You own the property.
- The property is classified as commercial for property tax purposes.
- The property is located in North Dakota.
Residential and agricultural property income tax credit
This credit is based on the property taxes levied on North Dakota residential or agricultural property. To qualify for this credit, all of the following conditions must apply:
If you own a mobile home classified as residential for property tax purposes, your mobile home taxes are considered property taxes for this credit.
If your primary residence is in North Dakota and you own residential or agricultural property in North Dakota, but you are not required to file a North Dakota individual income tax return because your income is too low, you are still eligible for property tax relief—see I’m not required to file a North Dakota income tax return. Am I entitled to the property tax relief? for more information.
Commercial property income tax credit
This credit is based on the property taxes levied on North Dakota commercial property. To qualify for this credit, all of the following conditions must apply:
If you own a mobile home classified as commercial for property tax purposes, your mobile home taxes are considered property taxes for this credit.
For additional information about the two credits, check out the Chart of Property Types and Income Tax Credits
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Q: How much is the credit?
A: The residential and agricultural property income tax credit is equal to 10 percent of the property taxes levied on the property, up to a maximum credit for the tax year of:
- $500 if the individual’s filing status is single, head of household, qualifying widow(er), or married filing separately, or
- $1,000 if the individual’s filing status is married filing jointly.
The commercial property income tax credit is equal to:
- 10 percent of the property taxes levied on property directly owned by the taxpayer plus
- 10 percent of the taxpayer’s share of commercial property taxes of a passthrough entity, such as a partnership or S corporation, provided the taxpayer held an ownership interest in the entity on the due date of the entity’s property taxes.
The maximum commercial property income tax credit for the tax year is limited to:
- $500 for an individual whose filing status is single, head of household, qualifying widow(er), or married filing separately, or
- $1,000 for an individual whose filing status is married filing jointly, or
- $1,000 for a C corporation.
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Q: How do I claim the income tax credits?
A: If you are an individual, claim the credits on your North Dakota Form ND-1 or your North Dakota Form ND-2.
If you are a C corporation, claim the commercial property income tax credit on your North Dakota Form 40.
If you are an individual whose primary residence is in North Dakota and you own eligible property, but you do not have to file a North Dakota income tax return, you may apply for a property tax relief certificate in the amount of the allowable credit on North Dakota Form ND-3.
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Q: On what years’ income tax returns are the income tax credits allowed?
A: The property tax relief program is a 2-year program. For the first year of the program, the income tax credits are allowed on the 2007 North Dakota income tax return, and are based on the 2006 real estate taxes and the 2007 mobile home taxes. For the second year of the program, the income tax credits are allowed on the 2008 North Dakota income tax return, and are based on the 2007 real estate taxes and the 2008 mobile home taxes.
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Q: What form should I use to calculate my property tax relief credit?
A: If you are an individual who is required to file a North Dakota income tax return (using either Form ND-1 or Form ND-2), you must complete Schedule PT and attach it to your return.
If you are an individual whose primary residence is located in North Dakota, and you do not have to file a North Dakota income tax return, you must complete Form ND-3 and file it with the Office of State Tax Commissioner.
If you are a regular (“C”) corporation that is required to file a North Dakota income tax return using Form 40, you must complete Form 40-PT and attach it to your return.
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Q: I file an income tax return but don’t have to pay any income tax. Do I claim the property tax income tax credit on my income tax return, or should I also file Form ND-3?
A: Whether or not you have to pay any income tax with your individual income tax return, if you are filing a Form ND-1 or a Form ND-2, you must claim the property tax income tax credit on your income tax return. Complete the applicable portions of Schedule PT and attach it to your return. Do not use Form ND-3. This applies even if you are filing a Form ND-1 or a Form ND-2 only to obtain a refund of all of the North Dakota income tax withheld from your paychecks for the year.
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Q: What information do I need to calculate my credit?
A: When completing the Schedule PT, Form ND-3, or Form 40-PT, whichever applies to you (see previous question), you will need the following information to calculate your credit:
- Property (or parcel) number from your real estate tax statement. Every county assigns a number to each parcel of property, which is shown on your real estate tax statement. Do not use the addition name or number, the block number, or the legal description, if shown on the statement.
- County number from the table provided in the instructions to the form. Do not write the name of the county on the applicable income tax form.
- Consolidated tax amount from your real estate tax statement. This is the amount of your total property taxes on the parcel of property before any special assessments are added and before any discount is subtracted.
- Your percentage of ownership in the parcel of property. You must indicate on the applicable income tax form whether you own all or just part of the parcel of property. If you are the sole owner of the parcel of property, you must enter 100% on the applicable income tax form. However, if you jointly own the parcel of property with one or more other taxpayers, you must enter your percentage of ownership on the applicable income tax form.
As an example, the illustration below shows where an individual should enter the required information for residential or agricultural property on either Schedule PT or Form ND-3, whichever applies.
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Q: My credit is more than my income tax. What happens to the unused credit?
A: If you are unable to use all of your residential or agricultural income tax credit on your North Dakota individual income tax return, you may elect to do one of the following:
- Carry forward the unused credit and use it on your next year’s North Dakota income tax return. If you are unable to use all of your unused credit on the next year’s return, you may continue to carry forward the unused portion of the credit for an additional four years (for a total of 5 carryforward years); OR
- Request the tax commissioner to send you a certificate for the amount of the unused credit that you may present to your county treasurer.
If you are unable to use all of your commercial property income tax credit on your North Dakota income tax return, you may carry forward the unused credit and use it on your next year’s North Dakota income tax return. If you are unable to use all of your unused credit on the next year’s return, you may continue to carry forward the unused portion of the credit for an additional four years (for a total of 5 carryforward years).
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Q: I own property jointly with my sister. How do I figure my credit?
A: The first thing you have to do is determine if you are eligible for a credit. For example, if the property you jointly own is residential property, your primary residence must be in North Dakota to be eligible for the credit.
The second thing you have to do is determine how much of the property taxes on the jointly owned property you can use to calculate your credit. For example, if you and your sister each own 50 percent of the property, and the total property taxes on the property are $2,500, you may use $1,250 ($2,500 x .50) of the total property taxes to calculate your credit.
Finally, you calculate your credit by multiplying your share of the total property taxes ($1,250) by 10 percent, which equals a credit of $125.
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Q: I cannot find a property or parcel number for my mobile home. What should I enter on my return for the property or parcel number?
A: Enter the receipt number that is generated at the time you paid your mobile home taxes. If you do not have this number, contact your county treasurer’s office to obtain it.
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Q: My home is in a rural location that does not yet have a street address, what should I enter as the address of my home on Schedule PT or Form ND-3?
A: If your home is located in North Dakota and is your primary residence, but does not have a street address (or a 911 address) assigned to it, enter the same address you entered in the name and address area of Form ND-1 (or Form ND-2) or Form ND-3. This normally is the rural route (“RR”), highway contract route (“HCR”), or other address normally used for U.S. Postal Service purposes.
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Q: I paid my 2006 real estate taxes on my home in December of 2006 so I could claim a deduction for them on my 2006 federal income tax return. Am I eligible for the residential property income tax credit on my 2007 North Dakota income tax return?
A: Yes. It does not matter when you pay your 2006 real estate taxes on your home for purposes of the residential property income tax credit, so long as they are paid in full before you file your 2007 North Dakota income tax return.
This also applies to the second year of the program, where the 2007 real estate taxes are taken into account in calculating the income tax credit on the 2008 North Dakota income tax return.
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Eligible Taxpayers
Q: Who is eligible for the income tax credit for residential and agricultural property?
A: Only an individual whose primary residence is located in North Dakota and who owned the property on the due date of the property taxes is eligible for the residential and agricultural property income tax credit.
To be eligible for the residential and agricultural property income tax credit on the 2007 North Dakota individual income tax return, the individual must meet satisfy all of the following conditions:
- The individual maintained a primary residence in North Dakota for the entire 2006 calendar year or established a primary residence in North Dakota during the 2006 calendar year that was maintained until the end of that year.
- The individual owned residential or agricultural property located in North Dakota on the due date of the 2006 real estate tax or the 2007 mobile home tax. The due date of the 2006 real estate tax is January 1, 2007, and the due date of the 2007 mobile home tax is January 10, 2007.
- The 2006 real estate tax or the 2007 mobile home tax is paid in full before the income tax return is filed.
To be eligible for the residential and agricultural property income tax credit on the 2008 North Dakota individual income tax return, the individual must meet satisfy all of the following conditions:
- The individual maintained a primary residence in North Dakota for the entire 2007 calendar year or established a primary residence in North Dakota during the 2007 calendar year that was maintained until the end of that year.
- The individual owned residential or agricultural property located in North Dakota on the due date of the 2007 real estate tax or the 2008 mobile home tax. The due date of the 2007 real estate tax is January 1, 2008, and the due date of the 2008 mobile home tax is January 10, 2008.
- The 2007 real estate tax or the 2008 mobile home tax is paid in full before the income tax return is filed.
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Q: Who is eligible for the income tax credit for commercial property?
A: An individual, regular (“C”) corporation, partnership, S corporation, or a limited liability company (treated like a partnership or S corporation) is eligible for the commercial property income tax credit. A partnership, S corporation, or limited liability company does not calculate the credit on its return; instead, the credit is calculated on the owner’s North Dakota income tax return based on the owner’s share of the entity’s North Dakota commercial property taxes. If the owner is another passthrough entity, the owner’s share of the commercial property taxes pass through to that entity’s owners. Ultimately, only an individual or a regular (“C”) corporation is entitled to claim the credit against the North Dakota income tax liability.
To be eligible for the commercial property income tax credit on the 2007 North Dakota income tax return, an individual or C corporation must meet satisfy both of the following conditions:
- The individual or corporation owned commercial property located in North Dakota on the due date of the 2006 real estate tax or the 2007 mobile home tax. The due date of the 2006 real estate tax is January 1, 2007, and the due date of the 2007 mobile home tax is January 10, 2007.
- The 2006 real estate tax or the 2007 mobile home tax is paid in full before the income tax return is filed.
To be eligible for the commercial property income tax credit on the 2008 North Dakota income tax return, an individual or C corporation must meet satisfy both of the following conditions:
- The individual or corporation owned commercial property located in North Dakota on the due date of the 2007 real estate tax or the 2008 mobile home tax. The due date of the 2007 real estate tax is January 1, 2008, and the due date of the 2008 mobile home tax is January 10, 2008.
- The 2007 real estate tax or the 2008 mobile home tax is paid in full before the income tax return is filed.
Q: Can I qualify for both income tax credits?
A: Yes. If you are an individual whose primary residence is located in North Dakota, you may qualify for both income tax credits if:
- You own eligible residential or agricultural property, and
- You directly own eligible commercial property or you hold an ownership interest in a passthrough entity, such as a partnership or S corporation, that has eligible commercial property.
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Q: I’m not required to file a North Dakota income tax return. Am I entitled to the property tax relief?
A: Yes. If you are an individual whose primary residence is in North Dakota, and you own residential or agricultural property located in North Dakota, but you are not required to file a North Dakota income tax return, you may still apply to the Office of State Tax Commissioner to obtain a certificate for the amount of your allowable residential and agricultural property income tax credit. You may redeem the certificate by presenting it to your county treasurer. To obtain the certificate, you must file North Dakota Form ND-3, which is available on our web site at http://www.nd.gov/tax/property/taxrelief/forms/form-nd-3-enabled.pdf
If you are not required to file a North Dakota income tax return, but you are filing one only to obtain a refund of all of the North Dakota income tax withheld from your paychecks, do not use Form ND-3. Instead, you must calculate and claim the residential or agricultural property income tax credit on Form ND-1. Obtain and complete Schedule PT and attach it to Form ND-1 to claim the credit. Then, to request the property tax relief certificate for the amount of the credit, check the applicable box on Form ND-1.
If you are an individual who owns commercial property in North Dakota, but you are not required to file a North Dakota income tax return, you will not benefit from the commercial property income tax credit because you won’t have any income tax to reduce by the credit, and there is no option to request a certificate for the unused amount of the credit.
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Q: I rent my home and I don’t own any other property subject to property tax. Am I eligible for an income tax credit?
A: No.
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Q: I rent my home and I own other property that is subject to property tax. Am I eligible for an income tax credit?
A: Yes. If your rented home is your primary residence and it is located in North Dakota, you are eligible for the income tax credit on any residential or agricultural property located in North Dakota that you own.
Also, if you own commercial property located in North Dakota, you are eligible for the commercial property income tax credit.
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Q: Is a tax-exempt organization eligible for any property tax relief?
A: Generally, no.
The property tax relief passed by the 2007 North Dakota Legislature is provided in the form of two income tax credits: one for individuals and the other for any taxpayer owning commercial property. While a tax-exempt organization having commercial property could qualify for the commercial property income tax credit, the credit will not be beneficial unless the organization has unrelated business taxable income (UBTI) that is subject to North Dakota income tax, requiring it to file a North Dakota income tax return.
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Q: I am eligible for other property tax reductions allowed by law. Am I eligible for an income tax credit too?
A: Yes. For example, let’s assume you purchased a home on which you qualified for the 2-year property tax exemption. If the value of the home for property tax purposes is $125,000, of which $75,000 is exempted, you are eligible for the income tax credit on the property taxes levied on the remaining value of $50,000.
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Q: Is a passthrough entity, such as a partnership, eligible for the income tax credits?
A: Yes, but only for commercial property located in North Dakota. Also, the passthrough entity itself does not claim the credit; instead, the entity’s owners, if eligible, claim the commercial property income tax credit based on their respective shares of the entity’s total property taxes on its North Dakota commercial property. A passthrough entity for this purpose means a partnership, subchapter S corporation, or limited liability company treated like a passthrough entity for income tax purposes. See the next question for more information.
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Q: Are the owners of a passthrough entity, such as a partnership, allowed to claim an income tax credit for the property taxes paid by the passthrough entity?
A: Yes, but only for commercial property located in North Dakota. The entity’s owners, if eligible, may claim an income tax credit based on their respective shares of the entity’s total property taxes on North Dakota commercial property. A passthrough entity for this purpose means a partnership, subchapter S corporation, or limited liability company treated like a passthrough entity for income tax purposes. An eligible owner means an individual or C corporation that held an interest in the entity on the due date of the entity’s property taxes. (In the case of an owner that is another passthrough entity, the owner’s share of the property taxes is, in turn, taken into account by that entity’s owners.) The eligible owner’s share of the entity’s total property taxes on its North Dakota commercial property is determined by the owner’s percentage of ownership in the entity on the due date of those property taxes.
An eligible owner takes the entity’s property taxes on its North Dakota commercial property into account on the owner’s North Dakota income tax return as follows:
- The entity’s 2006 commercial property taxes are taken into account on the owner’s 2007 North Dakota income tax return.
- The entity’s 2007 commercial property taxes are taken into account on the owner’s 2008 North Dakota income tax return.
Example: A partnership’s total 2006 property taxes on its North Dakota commercial property equaled $2,000. The taxes became due on January 1, 2007. The partnership has two individual partners, each of whom held a 50 percent interest in the partnership on January 1, 2007. On the 2007 North Dakota individual income tax return, each partner would take into account $1,000 of the partnership’s total 2006 property taxes on its North Dakota commercial property ($2,000 x 50%).
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Q: My brother and I operate a farm as a partnership. The title to the land was placed in the name of the partnership. How do we claim the income tax credit on the land?
A: If the title to the land is in the name of the partnership, and the land is classified as agricultural for property tax purposes, then neither you nor the partnership is eligible for the income tax credit on the land. The income tax credit for agricultural property is only allowed to an individual having a primary residence in North Dakota who directly owns the property. (Note: This same answer applies if the property is classified as residential for property tax purposes.)
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Q: Is a trust or estate eligible for the property tax income tax credits?
A: No. However, in the case of a grantor-type trust, the grantor of the trust is considered the owner of the property held by the grantor-type trust, and the grantor is allowed to claim the income tax credits on the grantor’s North Dakota income tax return if the grantor is otherwise eligible.
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Q: Is a bank or similar financial institution eligible for the property tax income tax credits?
A: No. A bank, bank holding company, thrift institution, trust company, and any other entity that is subject to North Dakota’s financial institution tax under N.D.C.C. Chapter 57-35.3 is not eligible for the property tax relief income tax credits.
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Q: I transferred the title to my home to my children, but I retained a life estate and am still paying the property taxes on the home. Who is entitled to the residential property income tax credit?
A: The life estate holder is entitled to the property tax income tax credit on the home.
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Q: I do not live in North Dakota, but I own agricultural land in North Dakota. How do I claim the income tax credit on my property?
A: You do not qualify for the income tax credit on your property because your primary residence is not located in North Dakota. The income tax credit for North Dakota property that is classified as either residential or agricultural for property tax purposes is only allowed to an individual having a primary residence in North Dakota.
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Eligible Property
Q: How do I know how my property is classified for property tax purposes?
A: The classification of property for purposes of the two income tax credits depends on how the property is classified by the county for property tax purposes. In general, the following rules apply:
- Property is classified as residential if it is used as a dwelling and contains no more than three separate family units. A separately assessed condominium or townhouse is residential property, even if it is part of a multi-unit structure.
- Property used for raising agricultural crops or grazing farm animals is assessed as agricultural property, with certain exceptions. Property on which an exempt farm residence is located is agricultural property.
- Commercial property includes all property that does not fall under another classification. Commercial property includes all vacant lots and all structures that contain four or more separate family units.
- If your property is used for more than one purpose, e.g., a house in which you live and operate a beauty shop, the portion of the house used as a beauty shop will be classified as commercial and the rest of the house as residential. In this case you will need to contact your local assessor or county director of tax equalization to find out how much of your total property tax is attributable to each classification.
As indicated by the above rules, the classification for property tax purposes will not necessarily be evident from its location or how it is used. Also, the property tax statements issued by the county do not show whether the property is residential, agricultural, or commercial.
If you are not sure how any parcel of property is classified by the county for property tax purposes, you will need to contact the county’s offices to find out. You can find contact information for county offices on the Internet at http://www.ndaco.org/counties/.
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Q: Are mobile home taxes eligible for the income tax credits?
A: Yes. Taxes levied on a mobile home classified as residential or commercial for property tax purposes are considered property taxes for purposes of the two income tax credits.
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Eligible Property Taxes
Q: What years’ property taxes are used to calculate the income tax credits?
A: On the 2007 North Dakota income tax return, the income tax credits are based on:
- The 2006 property taxes (on property other than a mobile home) due in the 2007 calendar year.
- The 2007 mobile home taxes due in the 2007 calendar year.
On the 2008 North Dakota income tax return, the income tax credits are based on:
- The 2007 property taxes (on property other than a mobile home) due in the 2008 calendar year.
- The 2008 mobile home taxes due in the 2008 calendar year.
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Q: Are special assessments eligible for either income tax credit?
A: No.
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Q: I paid my property taxes early enough to qualify for a discount. Are the income tax credits based on the amount of property taxes before or after the discount?
A: Before the discount.
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Q: I moved into North Dakota and purchased a home in 2006. The 2006 real estate taxes were prorated between the seller and me. Do I claim only my share of the prorated real estate taxes when calculating my residential property income tax credit?
A: No. Disregard how the 2006 real estate taxes were prorated. If the home you purchased in 2006 is located in North Dakota and is your primary residence, and you owned the home on January 1, 2007, use the total consolidated tax reported on the 2006 real estate tax statement issued by the county to calculate your residential property income tax credit.
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Q: I sold my home and purchased a new home in 2006. Both homes are located in North Dakota. Do I claim only my share of the prorated 2006 real estate taxes from the two transactions when calculating my residential property income tax credit?
A: No. Disregard how the 2006 real estate taxes were prorated. Also disregard the 2006 real estate taxes for the home you sold. If the home you purchased in 2006 is your primary residence, and you owned it on January 1, 2007, use the total consolidated tax reported on the 2006 real estate tax statement issued by the county for the home you purchased to calculate your residential property income tax credit.
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Form ND-3
Q: I have completed the Form ND-3. Do I file it with the county?
A: No. The Form ND-3 must be filed with the North Dakota Office of State Tax Commissioner. The address is: Office of State Tax Commissioner, 600 E. Boulevard Ave., Dept. 127, Bismarck, ND 58505-0599.
When the Office of State Tax Commissioner receives your Form ND-3, it will be processed and a property tax relief certificate will sent to you. When you receive the certificate, take it (or mail it) to the county treasurer of a county where you own or owned real property subject to property tax. Depending on the county’s policy, the county treasurer will either issue you a refund check for the amount of the certificate or apply it to a subsequent year’s property tax liability.
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Q: I am filing Form ND-3. How long does it take to receive the property tax relief certificate?
A: The Form ND-3 is processed like any other individual income tax return. The length of time it will take to process your form and mail the certificate to you will depend on the number returns that are filed at the same time you filed your Form ND-3. It may take anywhere from 3 to 6 weeks to receive your certificate depending on the time of year you file your Form ND-3.
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Q: If a North Dakota resident is not required to file an income tax return and fails to file the 2007 Form ND-3 before its due date of October 15, 2008, can the individual file a 2007 North Dakota income tax return to claim the income tax credit for possible use against a future year’s income tax liability?
A: No. Regardless of whether an individual having a primary residence in North Dakota files a 2007 Form ND-3 or a 2007 North Dakota individual income tax return (using either Form ND-1 or Form ND-2), it must be filed no later than October 15, 2008, to qualify for the property tax relief income tax credits.
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Miscellaneous
Q: I forgot to claim the property tax relief income tax credit on my original 2007 North Dakota income tax return. What should I do to correct this?
A: Up until October 15, 2008, do the following:
- Complete Schedule PT online on our web site. To open it, click on the following link: http://www.nd.gov/tax/property/taxrelief/forms/schedule-pt-enabled.pdf.
- Save the completed form (as a PDF file) to your computer’s hard drive, floppy diskette, CD, DVD, or other medium of your choice.
- Open your e-mail program, such as Microsoft Outlook, and create a new message. Address the message to: Individualtax@nd.gov.
- Attach the PDF file containing the completed Schedule PT to your e-mail.
- Send the message.
As an alternative to e-mailing the Schedule PT (as a PDF file) to our office, you may do the following:
- Print out the completed Schedule PT.
- Write “Missed Filing Schedule PT” at the top of the schedule.
- Fax it to “Attn: Jill Weigel” at 701.328.3700, or mail it to:
Office of State Tax Commissioner
600 E. Boulevard Ave., Dept. 127
Bismarck, ND 58505-0599
Important: DO NOT use the green preprinted envelope that is for mailing the North Dakota individual income tax return; instead, use a plain white envelope.
Upon receipt of your completed Schedule PT, our office will make the necessary adjustments to your return. If the adjustments result in an unused residential/agricultural property tax credit, a property tax relief certificate for the amount of the unused credit will be mailed to you.
After October 15, 2008, the above-described procedure does not apply. Instead, you must file a complete amended return, which includes the Schedule PT. The amended return must be submitted in paper form.
If the amended 2007 North Dakota individual income tax return is filed after October 15, 2008, and there is an unused residential or agricultural income tax credit claimed on it, you may only carry forward the unused credit to the your 2008 individual income tax return. Property tax relief certificates will not be issued after October 15, 2008.
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Q: If property owned by one taxpayer (landlord) is leased to another taxpayer (tenant), and the tenant actually pays the property taxes on the property, who is entitled to the income tax credit, the landlord or the tenant?
A: The landlord is entitled to the income tax credit.
A common example involves a retired farmer who owns agricultural land in North Dakota that he leases to another individual who uses the land for farming. In this case the retired farmer who owns the land is entitled to the agricultural property income tax credit even though the lease contract requires the tenant to pay the property taxes.
Another common example of this landlord-tenant situation involves what is called a “triple net lease.” Here, too, the landlord is entitled to the applicable property tax credit even though the tenant is responsible for paying the property taxes under the lease.
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Q: Should I change my North Dakota withholding or estimated payments?
A: No. We recommend that you don’t change the amount of North Dakota income tax withheld from your wages.
If you pay estimated North Dakota income tax, you may adjust your estimated payments to take into account the new income tax credits. However, we recommend that you don’t adjust your payments without making sure that you are entitled to either credit or consulting with your tax preparer.
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Q: I’m the sole owner of a limited liability company. I report the income and expenses of the business on my own income tax return. Can I claim a credit based on the property owned by the limited liability company?
A: Yes.
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Q: A corporation is a member of an affiliated group of corporations. Does the $1,000 limit on the commercial property income tax credit apply to each corporation in the group, or does it apply to the group? Does it matter if the group files a North Dakota corporation income tax return using the combined reporting method?
A: n the case of a taxpayer that is a corporation, the $1,000 limit on the commercial property income tax credit applies to each corporation in the group, regardless of the filing method used by the corporation or the group.
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Q: In the case of a partnership, S corporation, or a limited liability company, does the maximum amount of the commercial property income tax credit apply to the passthrough entity or to the owner?
A: The maximum credit applies to the owner.
Each of the eligible owners will report their respective share of the passthrough entity’s total eligible commercial property taxes on the applicable schedule of their own North Dakota income tax return. This amount is then added to any other eligible commercial property taxes on directly owned property or from other passthrough entities to determine the owner’s total eligible commercial property taxes. The owner is allowed a commercial property income tax credit equal to the lesser of (1) 10% of the owner’s total eligible commercial property taxes or (2) the maximum credit amount.
The maximum credit amount is equal to:
- $500 if the owner is an individual whose filing status is single, head of household, qualifying widow(er), or married filing separately, or
- $1,000 if the owner is an individual whose filing status is married filing jointly, or
- $1,000 if the owner is a regular (“C”) corporation.
If the owner is another partnership, S corporation, or limited liability company (treated like a partnership or S corporation), the owner’s share of the eligible commercial property taxes are passed through to its owners.
If the owner is an estate or trust (except a grantor-type trust), the owner is not eligible for the commercial property income tax credit and will not report its share of the eligible commercial property taxes on its North Dakota income tax return.
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Q: If an individual is eligible for one (or both) of the property tax relief income tax credits for the 2007 tax year, but the individual died during 2007, what happens to the credits?
A: If a final 2007 North Dakota individual income tax return is filed for the individual, calculate the credits on Schedule PT and enter them on the final return. In the case of the residential and agricultural property income tax credit, if the credit exceeds the income tax liability, choose the option to receive a property tax relief certificate. The deceased individual’s representative may then redeem the certificate in the county in which the property is located. If the individual has an unused commercial property income tax credit, there is no option to receive a property tax relief certificate—an unused commercial property income tax credit can only be carried forward to the next tax year—and therefore an unused commercial property income tax credit is of no benefit and is forfeited.
If a North Dakota individual income tax return is not required to be filed for the deceased individual for the 2007 tax year, and the eligible property consists of residential or agricultural property (or both), complete and file a 2007 Form ND-3 in the name of the deceased individual to obtain a property tax relief certificate. The deceased individual’s representative may then redeem the certificate by submitting it to the county treasurer of the county where the property is located.
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Q: Is a grantor trust eligible for the income tax credits?
A: Yes. The grantor of the trust is considered the owner of the property held by a grantor-type trust, and the grantor is allowed to claim the income tax credits on the grantor’s North Dakota income tax return.
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Q: I received a property tax relief certificate for an unused residential property income tax credit on my 2007 North Dakota income tax return. Do I have to report this as income on my 2008 federal income tax return?
A: If the certificate is used by the county to reduce your next year’s property tax liability, the amount of the certificate will not have to be reported as income on your 2008 federal income tax return.
However, if you receive a check from the county for the amount of the certificate, the amount you receive may be taxable on your 2008 federal income tax return to the extent you benefited from the deduction of the 2006 real estate taxes on your 2007 federal income tax return. Please consult with your tax preparer or a tax professional to determine how much, if any, of the property tax certificate amount is reportable as income.
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Q: I elected to carry forward my unused residential property income tax credit from my 2007 return to my 2008 return. Can I change my election to get a property tax relief certificate instead?
A: You may change your election up to October 15, 2008. To change your election, you must contact the North Dakota Office of State Tax Commissioner before October 15, 2008, and request that your election on Form ND-1, line 24c (or Form ND-2, Tax Computation Schedule, line 6c) be changed from a carryforward to a certificate. After October 15, 2008, you may not change your election.
You may e-mail your request to Individualtax@nd.gov. Or call our office toll free at 1.800.638.2901, or locally at 701.328.1032. You may also submit a written request to Individual Income Tax Section, Office of State Tax Commissioner, 600 E. Blvd. Ave., Dept. 127, Bismarck, ND 58505-0599.
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