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Property tax deduction recapture

I sold my house this month, and I qualify for 100% home sale tax exclusion.

At closing, I got pro-rated credit for portions of the school tax I due and paid last September, and the county/town tax due and paid this January. I took the standard deduction for 2019, but I expect to itemize deductions when I make out my 2020 return. I don't expect to hit the $10,000 SALT limit.

Let me make up some numbers, to make the question easier.

School tax $2400 paid 9/2019, $1000 credited at closing County tax $1800 paid 1/2020, $1350 credited at closing

Must I reduce my 2020 property tax deduction by the amounts returned to me when selling my house?

(a) The $1000 portion of tax paid in 2019, since I took the standard deduction in 2019? (I assume this answer is No.) (b) The $1350 portion of tax paid in 2020, when I itemize deductions in 2020?

I know 2020 taxes are a long way away, but this makes a difference to me now because I have to pay estimated taxes this year.

(c) Out of idle curiosity, what if I had itemized in 2019 instead of taking the standard deduction? Would there be any recapture of the $1000 credited against property tax paid in 2019?

Reply to
Stan Brown
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Assuming you are a cash basis taxpayer (almost everyone is), real estate taxes paid or credited at closing are adjustments to your 2020 real estate tax paid.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

"Example 29. "You claimed the standard deduction on your 2018 federal income tax return. In 2019, you received a refund of your 2018 state income tax. Don't report any of the refund as income because you didn't itemize deductions for 2018."

Granted, that example treats state _income_ tax not _property_ tax. But the first paragraph sure seems to be saying that the part of the amount I paid in 2019 and received as a credit in 2020 doesn't have to be included in my 2020 income. What am I missing here?

Reply to
Stan Brown

I'm sorry, I really didn't answer your specific questions. The tax benefit rule applies here as well. If you didn't get a tax benefit in 2019 for the real estate taxes paid, the part of the credit related to the 2019 tax doesn't impact your 2020 return. If you had itemized in 2019, it would be a reduction of your 2020 allowable real estate tax deduction. There might be additional wrinkles if SALT limitations come into play.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

Thanks, Ira! The amount involved would mean a few hundred in taxes, so I wanted to be 100% sure I had it right.

Reply to
Stan Brown

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