Condo Association Pays Real Estate Taxes

This sounds strange. I've never seen a condominium project that could be sold before it had been platted and each unit assigned its own real estate tax designation.

See IRS Publication 530 for information about the time period for which you can deduct taxes. Anything you pay that accrued before you owned is not deductible by you and should have been accounted for (seller giving you money to pay it) at closing.

If it turns out that the association really did pay taxes for periods of your ownership, see the section in the Pub on Cooperatives. While yours isn't a coop, I'd apply the same principle. (I might also be wrong, but I'd argue that it's the same.)

The legal package the developer recorded (here it's called a Public Offering Statement) and you didn't read (check the back of the closet) should detail your percentage of ownership, which could be applied to the taxes paid.

It wouldn't, as there is no requirement to do so.

I believe this is the case. Pub 17 states this to be so for cooperatives, so your first year in the condo is akin to this situation. Have the condo association provide each member with a letter documenting their share of the property taxes, and a copy of the total property tax bill. This documentation need not be provided to the IRS, unless requested.

"Phil Sandler" wrote

As the land/building was owned by the association or the builder/developer, one bill would have been presented to and due by that entity.

Property tax is often paid mid-year, for that year. As such, if you bought after the tax payment, you would (or should) see an adjustment for property taxes paid in advance by the seller on your closing statement (generally a HUD-1). That amount is what you get to deduct.

Were they paying for taxes that ~~~YOU~~~ legally owed?

You can't take a deduction for taxes you didn't owe.

As far as proof, what document does the association have that they paid by? Does it break down the tax by unit?

All,

Thanks to everyone for their responses. Comments inline:

"Phil Marti" wrote:

Apparently this is comm> "Phil Sandler" wrote

Yes, we received and paid one bill (two technically, as there are two payments each year in Chicago).

I'm not sure I'm clear on this. The amount of 2006 tax deposit the seller paid at closing is the amount I can deduct? That seems counter- intuitive to me; logically it would seem that the seller could deduct that amount, while I would be able deduct the prorated amount for the balance of the year.

To clarify with an example, let's say the total tax bill for the building was $10,000, and each unit's share was exactly 25%. That would mean each unit's ownership share would be $2500 of the tax bill (theoretically, of course).

Now let's say we closed on April 1st, so we owned the property for 75% of the year, and the seller owned it for 25% of the year. Let's assume the seller correctly paid $625 as a tax deposit at closing.

We would then be able to deduct the $625, even though it was technically not paid by us, and wasn't paid in the year 2007?

No, the taxes were for the whole building, by the association. So it sounds like what you are saying it we can't deduct our percentage.

Again, we just got two tax bills for the whole building, which was paid by the association. We only have the paid bill and the cancelled check (and I guess the allocation of ownership for each unit).

In general, it seems to me that if real estate taxes are paid,

*someone* should logically get to take a deduction somewhere. Maybe that's naivety on my part. :)

Thanks again for your thoughtful responses. Any additional insight would be appreciated.

Phil

Aha! The plot congeals. Good old Illinois property taxes paid in arrears. I've been told it was a one-time gimmick in the Depression that they never got around to repealing. If not unique to Illinois, it's extremely rare elsewhere.

If you closed in 2006 you can deduct the property taxes from your date of closing through the end of the year. This would have been paid in 2007. Owners who bought in 2007 have not yet paid any deductible taxes.

Assuming you closed in 2006, you were given a credit for 2006 property taxes accrued by the seller which you would have to pay in 2007. As you note, you cannot deduct that amount.

You can deduct on your 2007 return the 2006 taxes attributable to your 2006 ownership which you paid in 2007.

Just to make sure, you're talking about 2006 taxes, billed to and paid by the association in 2007, and you closed on your purchase sometime in 2006.

Now, one more question. How did the 2006 bill, paid in 2007 by the association, get paid? IOW, where did the money come from?

"Phil Sandler" wrote

Nope. The amount you reimbursed the seller for. It should have added to your purchase price. Look at the HUD-1.

But, you said that taxes are paid in arears in Chicago, so the amount you paid in 2007 was for 2006, when you didn't own the condo (which happens also). So the HUD-1 sould have decreased the amount to the seller by the unpaid taxes, and decreased the amount you needed at closing, so you get to deduct the taxes you paid during the year, less the tax adjustment for the sellers unpaid taxes.

I'd take your percentage of the tax paid by the association, then make the math adjustment (maybe an increase, maybe a decrease) for the taxes-paid-in-advance (+) or the unpaid taxes (-) of the seller.

It got paid for out the association's funds. The source of these funds included monthly payments from each unit, plus the deposits made at closing, plus (to a smaller degree) a special assessment we made when we got the tax bill.

Thanks again,

Phil

Then I'd treat it the same as a coop.