Real estate taxes on Schedule A

[Guest]

?We bought a new main home this year and received prorated seller's credit
toward 2010 real estate taxes at closing, but have not been billed or paid
any taxes on the new home this year. We did pay full real estate taxes on
our other home (different state billing cycles). I assume that we put a
negative amount of the seller's paid portion in Schedule A real estate taxes
on your main home and the amount paid on the old home in other real property
taxes. Then next year we would deduct the full amount of taxes paid on each
home. Is that correct, or do we wait until 2011 and subtract the seller
payment from our new home taxes payment? Because we are cash basis
taxpayers, I presume the first scenario that we report both payments and
credits in the year received. Thanks.

.......................................................................................
"The center of the universe always is someplace else."

 

[Gene E. Utterback, EA, RFC, ABA]

?We bought a new main home this year and received prorated seller's credit
toward 2010 real estate taxes at closing, but have not been billed or paid
any taxes on the new home this year. We did pay full real estate taxes on
our other home (different state billing cycles). I assume that we put a
negative amount of the seller's paid portion in Schedule A real estate
taxes on your main home and the amount paid on the old home in other real
property taxes. Then next year we would deduct the full amount of taxes
paid on each home. Is that correct, or do we wait until 2011 and subtract
the seller payment from our new home taxes payment? Because we are cash
basis taxpayers, I presume the first scenario that we report both payments
and credits in the year received. Thanks.

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

 

[Mark Bole]

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


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.

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.

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.

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

 

[Seth]

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,

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 $4,000/year, so I actually pay the seller $98,000 (getting a
"rebate" of $2,000 for the half-year of taxes he owes and I'll be
paying). In that case, I pay $4,000 on Dec 31, and deduct $2,000 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

 

[Phil Marti]

?We bought a new main home this year and received prorated seller's credit
toward 2010 real estate taxes at closing, but have not been billed or paid
any taxes on the new home this year. We did pay full real estate taxes on
our other home (different state billing cycles). I assume that we put a
negative amount of the seller's paid portion in Schedule A real estate taxes
on your main home and the amount paid on the old home in other real property
taxes. Then next year we would deduct the full amount of taxes paid on each
home. Is that correct, or do we wait until 2011 and subtract the seller
payment from our new home taxes payment? Because we are cash basis
taxpayers, I presume the first scenario that we report both payments and
credits in the year received.

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

 

[Guest]

?

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

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.

 

[Guest]

?

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

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.

.......................................................................................
"The center of the universe always is someplace else."