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Real Estate Tax Odd Situation

The property tax on my residence was raised in manner inconsistent with the taxing agencies rules. I was supposed to get a notice in April, and the opportunity to appeal the increase. I received no such notice.

To my substantial surprise, the Property Valuation Administration not only admitted their mistake, they also corrected it.

Unfortunately, it was too late for my escrow account. The incorrect higher amount was paid to the tax agency. The tax agency in turn issued a refund check to me (not to my escrow account) for the difference.

Obviously, even though the statement from my mortgage company shows the incorrect higher tax paid, I should only take the deduction for the smaller, corrected tax amount.

My question is, will the refund check from the tax agency be taxable income?

Reply to
Tony Sivori
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Was the higher property tax paid, and refund received in the same year? If yes, then the refund is not taxable income. Just deduct the lower amount.

Reply to
removeps-groups

Doesn't it come out the same either way? Either you have additional income offset by the higher deduction, or you have a lower deduction.

Unless you aren't able to itemize deductions. But most people who own a home have enough mortgage interest and property tax that they can itemize.

Reply to
Barry Margolin

Yes, fortunately for me I cashed the check last week for taxes that were paid at the end of November.

Reply to
Tony Sivori

Note that if you're in AMT then you don't get a tax break for your property tax deduction, so the refund is not taxable.

Reply to
removeps-groups

So I see. We could do the tax return two ways.

(1) Take the higher deduction on Schedule A and additional income on form 1040 (but if an AMT then the additional income is 0). (2) Just take the lower deduction on Schedule A.

If both methods result in the same tax, then use method (1) as you're guaranteed the IRS won't contact you. If method (1) results in higher tax, say because you take the standard deduction only, then use method method (2), and respond to the IRS should they inquire. Does this strategy sound OK?

Reply to
removeps-groups

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