NYS send me a check, saying my real estate tax was in excess of the allowed tax cap. It does not say which tax, which property, or even what year it is for.
Does it matter? I am guessing I just reduce the amount I claim on my 2016 real estate deduction by the amount of the check; regardless of what it is actually for. Is that correct?
As you just received it, it relates to a payment you made in an earlier year. To the extent that you obtained a tax benefit in the earlier year (you itemized and deducted real property taxes and you received the full benefit of itemizing) you have a "recovery." You do not net it against current year property taxes. You include the amount on Form 1040 Line 21 Other Income on your 2016 tax return.
The reason it is not netted against 2016 property taxes is that taxpayers don't always itemize every year.
I have itemized in the past, but the way things worked out I got no reduction in taxes from the real estate deduction. But now I have to pay tax on the refund!? I guess it is better than not getting the refund, but it seems unfair. (but I guess few things about taxes are fair...)
As you just received it, it relates to a payment you made in an earlier year. To the extent that you obtained a tax benefit in the earlier year (you itemized and deducted real property taxes and you received the full benefit of itemizing) you have a "recovery." You do not net it against current year property taxes. You include the amount on Form 1040 Line 21 Other Income on your 2016 tax return.
The reason it is not netted against 2016 property taxes is that taxpayers don't always itemize every year. ============ Although the general advice above is true, note that the recipient of the recovery was not told what tax year nor which property the refund is for. Therefore, he can't determine whether his recovery should be recognized or not as it is includible ONLY to the extent of the tax benefit of the related deduction. More guidance is needed.
The OP needs to look at ALL of his property tax deductions and see if there are any which may have an excluded recovery (due to no tax benefit from the deduction) in the most recent years (I'd limit it to three). If there are no deductions which did not yield a tax benefit, it is clearly included. Otherwise, it may be a refund of an amount which did, and therefore, it should be excluded on the grounds that it may be that deduction which yielded no benefit. Remember that under the benefit rule, an exclusion for a recovery may be total or partial.
As I and D. Stussy pointed out, you only have income to the extent you received a tax benefit for deducting property taxes in the year that the refund relates to. As this refund dealt with the excess over the allowed cap, the county should be able to tell you exactly which year it related to. You could then check that year's tax return to see if you benefited from deducting property taxes.
Okay, I haven't had a chance to contact anyone yet, but if it is turns out to be from 2015, can I just reduce the amount I am deducting by the refund, even though the refund arrived in 2016?
If it was from 2014, I checked and had my deduction been lower, I would not have saved anything on my Federal return, but would have a saved #40 on my NY return, which is about 5% of the %750 refund. But real estate taxes aren't deductible on the state return are they? So why would my state tax return be affected? The bigger question is that since my Federal return was not affected, but my state was, do I declare the refund as income?
This turned out to be more interesting than I expected.
If only. Here in New York, we have a crazy quilt of overlapping counties, towns, villages, cities, school districts, fire protection districts, and more. I get tax bills from the town (which includes the county tax), the school district (which includes the library district tax), and the village. The school district includes parts of towns in three counties, and while my village is entirely within one town, there is one village that includes parts of three towns in three counties.
The districts that most often run up against the cap are school districts, cities, and villages. If you call the various municipal offices they can surely tell you whether they got retroactively capped since they'd have had to revise their budget.
In most cases the refunds are tiny, and it's not clear if it's worth redoing last year's returns.
Refund or rebate of real estate taxes. If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income.
Pub 525 says (as I read it) you treat them like state income tax refunds, current income to the extent you deducted them.
This is a link to a NYS webpage that explains what the check is for, though I really can't make much sense out of it.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.