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impound account and property tax deduction

Is the full amount you pay into a property tax impound account deductible? Say you want to pay this year's and next year's taxes now in order to get a deduction because you expect to be in AMT next year. If you pay your taxes directly to the county then you deduct the full amount paid. But if you pay 15 months of property tax into an impound account, I imagine the impound account managers will collect interest on the money and pay the county every 6 months.

And is there a limit on how much you can pre-pay? What if I wanted to pre-pay 10 years worth of property tax?

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If by "impound" account you mean something like an escrow account maintained by a mortgage holder, the answer is no. What you deduct is what the impound custodian transfers to the taxing authority.

A cash basis taxpayer can pay real estate taxes one year in advance and thereby get a deduction for two years of payments on one federal income tax return.

Reply to
Bill Brown

Bill Brown wrote: [snip]

The only way to get a deduction for two years of property taxes in one year is if you are past due on your taxes. Otherwise, you can only get a deduction for 1.5 years. This would include the

2nd payment made in the spring for the last fiscal year and the full year payment in the winter for the current fiscal year.
Reply to
Alan

Thanks. The keywords in your article helped me to find the articles

escrow account -

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month rule -
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That depends on your state. Here in NC the tax is due annually in September but not late until January 5th. So you can easily pay two years of tax in the same year. Pay 2009 tax in January 2010 and 2010 tax in 2010.

Drew Edmundson, CPA Cary, NC

Reply to
Drew Edmundson

You are correct. There are some jurisdictions on the one payment method that bill before calendar year-end and allow you to pay without penalty in the next year.

Reply to
Alan

So in those states can someone pay and deduct two and a half years in advance?

Reply to
Stuart A. Bronstein

No, a cash basis taxpayer can only deduct one year in advance. But they deduct as many as they want that they pay late. In my prior example, the taxpayer is paying his NC real estate tax for the current year in the next year and then paying next year's tax next year. In NC we cannot pay in advance because the bill is not generated for the current year until July. Since I will not have a 2010 bill until 2010, I cannot pay it until then. Our rates are set annually, so there is no way to be sure what next year's tax will be until the local government sets the rate (almost always done by June 30).

NC does not have a half year method. Would the county accept a deposit towards next year's tax? I have no idea. Would it be deductible? I doubt it as no tax is yet owed for next year in NC. YMMV based on your state.

Drew Edmundson, CPA Cary, NC

Reply to
Drew Edmundson

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