What is the Massachusetts Title V Tax Credit?

Our yard being dug up for a septic system replacement
Our yard being dug up for a septic system replacement

The Title V Credit

If you are reading this article purely for the sake of learning something new - BE THANKFUL!

If not, and you are one of the "fortunate" folks who have to replace or repair their septic system in Massachusetts, due to a Title V failure, then you might have heard about the Title V tax credit offered by the State.

Having just gone through the process of replacing our entire septic system I have learned about this credit and how to obtain it. One would think the state would make this tax credit more clear, to help homeowners who have to replace their septic systems. But this is far from the truth. My goal in this article is just to provide some of the basic details about the Title V Septic System tax credit available to those who must replace their system due to a failure.

"Title V" by the way, is a reference to the Title V of the Environmental Code which is regulated by the Mass Dept. of Environmental Protection. This regulation requires homes with a Septic System to pass an inspection before the property can be sold (or, under certain circumstances, at least the provisions for repair must be made before it is sold). Thus, homes for sale in Massachusetts will often say things like "Title V in hand" to indicate they have passed this inspection.

Repairing or replacing a septic system is expensive, and can run the homeowner $20,000 or more, depending on the particular design of the system required. The Title V tax credit is designed to relieve some of the burden of that cost.

Excavators leave BIG tracks in soft grass!

"Merry Christmas - where should we place your new septic tank?"
"Merry Christmas - where should we place your new septic tank?"

In order to qualify for the credit:1

  1. the amount of credit cannot exceed $6,000. The computation of the credit is 40 percent (.40) of available actual costs, not to exceed $15,000 ($15,000 x .40 = $6,000);
  2. the maximum amount of the computed credit claimed in any tax year cannot exceed $1,500;
  3. in the computation of the credit, any interest subsidy received from the Commonwealth must be subtracted;
  4. the credit may be claimed beginning in the tax year in which the repair or replacement work is completed; and
  5. the owner completes Massachusetts Schedule SC and encloses it with the tax return

1. From the Mass Dept. of Revenue Site

FACTS ABOUT THE TAX CREDIT

Okay, for those who want to understand the Massachusetts Title V tax credit, here are a few facts:

1) This is a tax "credit" not a deduction. This is good. This means you actually get the amount of the credit deducted directly from what you owe in taxes that year. If you do not owe any additional taxes at the end of the year, then you will get the credit back when you file your state taxes. Note - this is a State Tax credit. Your Federal taxes are not effected or altered by this credit.

2) The credit can ONLY be taken once the system has been completely installed and a certificate of compliance has been issued by your town. Therefore, if it is getting close to the end of the year, you may need to put a little fire under everyone to get the work done and paperwork properly filed so that you can get your compliance certificate issued before December 31. Otherwise, you will have to wait until the following year to claim your credit.

3) You may have heard things like "you will get 40% back" on the cost of your replacement. This isn't quite right. Here is how it works. You can get UP TO 40% back...up to a maximum replacement or repair cost of $15,000. That is, you can up to $6,000 (40% of 15K) back for a repair or replacement exceeding $15,000. For repairs less that $15,000, you get 40% of those costs back as a credit. Our costs were over $15,000, so we qualify for the $6,000.

4) Even if you qualify for the full $6,000, you can only get $1500 per year as a credit, and must therefore file for this credity every year for 4 years to get the full amount.

5) To file for this credit, you must complete a Schedule SC form. Also, you cannot e-file if you are claiming this credit (at least as of April 2012 you cannot efile).

The Anatomy of a Septic System

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