Can a non-owner deduct real estate taxes?

Assuming you are in business, you should deduct the real estate taxes as rent expense. The owner should record the real estate tax you paid as an expense and a corresponding equal amount of additional rental income.

Same answer as above.

"NadCixelsyd" wrote

Even if you are an individual leasing the property for personal use, the property tax you pay - as an owner or partial owner of the property - are deductible on Schedule A.

If you operate a business from that property (no personal use at all) then the amount paid to occupy that space is deductible.

Paul Thomas, CPA wrote: ...

... Would a "pure renter" paying the landlord's tax assessment directly be able to deduct that in comparison as if were member of an association assessment?

Couldn't decide when I read the OP's question whether the two were the same situation restated or two separate cases...

If you are asking about personal use property that you rent:

A lessee does not have an ownership interest even if the lease states that the lessee is to pay the property taxes. Without an ownership interest, you can not deduct the taxes you paid.

If you are asking about property you rent used for a trade or business:

A lessee can deduct the property taxes paid as additional rent payments.

When you own property jointly, you have an ownership interest. As such, if you pay the taxes, you can deduct the amount you paid.

So in a case like that, would it make sense for the lessee to buy 1% of the property, so as to make the taxes deductible? (In order for the purchase not to be a sham, it could be specified that it will be repurchased at 1% of the property's FMV at the time of sale.)

Seth

I find nothing in the law that specifies how much of an ownership interest is required to become liable for the payments. I would assume that your 1% interest would make the "owner" liable to the county for the tax payments if the majority owner did not pay.

A non-business "pure renter" would not, for federal tax purposes, be able to deduct the rent or the property tax paid.

They do not have ownership.

Hard to tell.

That opens up a whole other can of worms. Give the existing (not to mention the prior) mortgage situation, any change in ownership might be cause for a change in loan structure too. An existing owner might not want some 1% owner mucking up the gears with potential encumbrances of their 1%, etc.

Paul Thomas, CPA

Could you give me a cite on that, Paul?

ChEAr$, Harlan

Re-reading what I wrote and it came out sounding stupid. I was thinking of a recent court case involving equitable ownership. In the case I recall, the non-owner parents could deduct the interest and taxes they paid on Schedule A.

If you're part owner of an entity whose business activity it is to rent the space, and you just happen to be one (or the exclusive) renter, then chances are the deduction would be at the entity level.

Code section 164 says, "Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued: (1) State and local, and foreign, real property taxes."

Except for the case of tax apportionment between buyer & seller (164(d)), it says that the payer can deduct the tax. I could find nothing that says that only the owner (that person against whom the taxes are assesed) could deduct the taxes.

I do not receive any benefit to the deduction for r/e taxes. If my son pays my taxes for me, can he deduct them? Do I even need to sell him a 1% interest in the property???

I feel a bizarre urge to turn this discussion into a table or flow-chart... I think I'll lie down until it passes. ;-)

Here's what I've picked up or sub-consciously interjected so far:

1. tax payments made in lieu of rent are treated just like rent (on both sides of the transaction). The owner has rental income (and rental expense that cancels it out, Pub 527, "Expenses paid by tenant"), the renter may or may not have a deduction.

1. ad valorem taxes on real estate you own are always deductible on Schedule A "Taxes You Paid" if not otherwise deducted against a passive activity or business/trade activity.

2. Pub 527: "If you own a part interest in a rental property, you can deduct your part of the expenses that you paid".

1. If you have joint ownership for purposes other than "merely to share expenses", it is a partnership (Pub 541).

The OP isn't asking whether the real estate taxes are deductible, only by whom, and against what activity. We need to know what type of activities the owner and renter are engaged in, and what the partnership agreement (if any) contains.

I realize I'm not quoting actual tax statutes here, but is the goal to evaluate IRS pubs vs. tax law, to help a real-life client avoid taxes, or to resolve the mechanics of how something is reported?

-Mark Bole

Here is the short, correct answer. If you are making personal use of the property, the real estate taxes are NOT deductible because from your perspective, paying them is the same as paying rent.

If you are making business use of the property, real estate taxes ARE deductible because from your perspective, paying them is the same as paying rent.

Then should the 1% owner only be able to deduct 1% of the real estate tax, even if they paid all of it?

No; any actual owner can deduct all of the real estate tax they pay.

Seth

The correct answer comes as no surprise: IT DEPENDS. A contract purchaser whose name is on neither the mortgage nor the deed may, in some circumstances, deduct the real estate taxes.

Keep in mind that this is taxation where facts and circumstances prevail over logic - because if it was logical, they couldn't call it taxation.

Dick

Right. However if he had an agreement whereby the son paid his property taxes and he agreed that, on his death or when the property is sold the son will be paid, the son has an equitable ownership interest in the property. It would have to be structured carefully to avoid it being considered only a security interest to assure repayment. But if done properly I imagine that the son might be able to get the deduction.

Stu

[snip] The Sec. 164 regs state that a real estate tax is a tax imposed on interests in real property.

In addition, there is a general rule (I have no citation but there are numerous tax cases) that says a taxpayer's payment of another person's obligation is not deductible.