Real estate taxes on Schedule A

Cash basis taxpayers get deductions in the year they pay them.

If you bought a new home in 2010 and the seller had already paid the taxes for the year, then you are essentially reimbursing him for the taxes he's already paid and for which part of the year you now occupy the home. For example, if I paid $1,200 in real estate taxes in July for the coming fiscal year then I sell you my house on August 30, the settlement sheet will show that you are reimbursing me for $1,000 in real estate taxes - I paid $1200 (or $100 a month), I lived there for 2 months then sold to you. You reimburse me for the $1,000 I've already paid and for which you will benefit - because the county treasurer will NOT refund money to me then bill you.

Where you get putting a negative amount on Schedule A eludes me - THOUGH - lets assume that on 07/01/09 I paid $1,200 in real estate taxes on my house. In Jan 2010 I do my tax return and I deduct the whole $1,200 (perfectly correct). Then in February of 2010 I sell my house to you. The seller's side of the settlement sheet will show that the buyer reimbursed me for some portion of the taxes I paid - THIS will go on my 2010 tax return in 2011 as a negative, because I am not entitled to a deduction for money I didn't pay and by getting reimbursed by the buyer technically I didn't pay them.

Gene E. Utterback, EA, RFC, ABA

Agreed.

You also had to be legally liable for the tax. What state/county is your property in? In some locales, you pay property tax "as you go". For example, in California you have a property tax fiscal year of Jul 1

- Jun 30, and your first half-year bill is due in December, while your second half-year bill is due in April. But in some other states, such as Illinois, you are paying property tax in arrears (paying in one year for a prior fiscal year). In such a case, your settlement statement will typically include an estimate of the current year taxes you, as the new home buyer, are liable for. What the seller paid in the current year, for a prior year liability, will not be deductible for you.

From 2009 Form 1040 Schedule A instructions, substitute "2010" for "2009":

"Refunds and rebates. If you received a re- fund or rebate in 2009 of real estate taxes you paid in 2009, reduce your deduction by the amount of the refund or rebate. If you received a refund or rebate in 2009 of real estate taxes you paid in an earlier year, do not reduce your deduction by this amount. Instead, you must include the refund or re- bate in income on Form 1040, line 21, if you deducted the real estate taxes in the earlier year and the deduction reduced your tax. See Recoveries in Pub. 525 for details on how to figure the amount to include in income."

-Mark Bole

It's the other way around. I buy a house for $100,000, close on July

1. Real Estate Taxes are due Dec 31 for each calendar year. The seller has paid no taxes for this year. Real Estate taxes for the house are ,000/year, so I actually pay the seller ,000 (getting a "rebate" of ,000 for the half-year of taxes he owes and I'll be paying). In that case, I pay ,000 on Dec 31, and deduct ,000 of that.

Change the circumstances slightly: taxes are due January 15 for the _previous_ year. Now, in 2010 I've "received" $2,000 toward real estate taxes from the seller, and I don't pay any real estate taxes.

How would that be reflected on my 1040?

I'm sure most people would prefer to just set the purchase price to $98,000.

Seth

Let's leave your second home out of this because it operates just as it always has.

For your new home you have no 2010 deduction since you paid nothing in

2010 to either the seller or the taxing authority. Nor do you report anything on your 2010 return regarding the payment the seller made to you at closing. When you pay the 2010 taxes, presumably in 2011, you have a deduction equal to the portion of the taxes that apply to your 2010 period of ownership (even though your check to the taxing authority will be more). See Publication 530.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Maybe my OP wasn't clear enough. No 2010 property taxes on the new home will be paid in 2010. In CO they are paid in arrears. The 2010 property taxes will not be billed and paid until 2011. Previous owner paid full 2009 RE tax bill in 2010; that did not involve us, other than the title company assuring that all taxes had been paid. As Phil Marti cited, it appears that we enter nothing on 2010 Schedule A for real estate taxes on the new home. On 2011 Schedule A we enter the net paid (total tax bill minus the seller's credit towards estimated 2010 property taxes).

Thanks.

Thanks Phil. You get the picture. We will not have paid any taxes on the new home in 2010. The credit from the buyer at closing was for estimated taxes for the portion of 2010 she owned the property. Those are not payable until

2011. Based on your response, we will wait until we file our 2011 return and subtract the seller's estimated tax credit from the amount we actually pay. IOW, my second scenario seems to apply. Thanks again.

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