Property Tax Allocation On Closing Statement

[SFBOB]

Buyer paid $6000.00 property tax in 2010 on new home purchased July 1, 2010. The $6000.00 assessors invoice was for 12 months property tax in 2010. The selled had not paid any 2010 property taxes pending the sale. On the closing statement the seller gave the buyer credit for $3,000.00. The credit was for the taxes unpaid for period 1/1/2010 to 6/30/2010.In that the buyer sent his personal check to the assessors office in the amount of $6,000.00 can he deduct $6,000.00 on his 2010 tax return, or only $3000.00? The buyer was not personally liable for the taxes until 7/1/2010. What the seller really did was reduce the selling price,and could have paid the taxes from 1/1/2010 to 6/30/2010. This is commonly done this way at the time of closing.I am embarresed to say, I have been doing tax prep for 20 years and have not really been sure of the answer. Thanks for your replys. Bob

[BP.]

TTB 4-9 under Sale or Purchase of Home. I think it'd just be the $3K. Example #2 seems to be your same situation. (Don't be embarrassed- these questions are how I learn.)

[Burke]

That is correct. Real estate taxes are almost always adjusted on the tax return for credits/debits on closing, as they almost never occur right on the date the tax is due.

[SFBOB]

Burke Your Thoughts Please

Does this mean that the seller can claim the deduction from 1/1/2010 to 6/30/2010.The sellers deduction would then be based upon the sellers credit to the buyer as reported on the closing statement. The buyer has a paid receipt for $6,000.00 however can only deduct $3,000.00 correct?

I bet the $6,000.00 would be taken by a taxpayer using Turbo Tax. The Turbo Tax program would ask the taxpayer how much property tax they had paid. The Turbo Tax user would enter $6,000.00 and get a larger refund than my client with my accurate work. Well I guess that is life in the big city. No one seems to give a **** any more, right? Thanks for your reply. Bob

[FEDUKE404]

Half to each

Does this mean that the seller can claim the deduction from 1/1/2010 to 6/30/2010.The sellers deduction would then be based upon the sellers credit to the buyer as reported on the closing statement. The buyer has a paid receipt for $6,000.00 however can only deduct $3,000.00 correct?

I bet the $6,000.00 would be taken by a taxpayer using Turbo Tax. The Turbo Tax program would ask the taxpayer how much property tax they had paid. The Turbo Tax user would enter $6,000.00 and get a larger refund than my client with my accurate work. Well I guess that is life in the big city. No one seems to give a **** any more, right? Thanks for your reply. Bob

These adjustments are quite common. I always ask to see the HUD-1 closing statement and scrutinize it carefully.

The owner of the property is liable for any taxes owed on the property. That is why attorneys get involved in closings so such allocation matters are not overlooked. (Had the seller paid nothing, the new owner would be responsible for the full tax bill regardless of when he lived in the new home.)

The seller is entitled to what he "paid" at closing.

The buyer is entitled to what he paid (receipt of $6k) reduced by the amount the seller (indirectly) paid to him.

Where things can get sticky is the buyer will have a "tax paid" receipt and a careless preparer may not ask enough questions to get the complete facts.

And, even worse, a client will jump up and down saying "but look at this receipt!!" and demand to take the full amount shown.

(It's a lot like people who "pay" for their medical premiums with pre-tax wages and then argue with you when you tell them those costs cannot....again....be deducted. )

FE

[SFBOB]

Thanks to all for the reply's

I wonder what the Turbo Tax users working on the kitchen table will do, when the question is how much property tax did you pay in 2010? 100% or $6000.00 will give them a larger refund,right? Well thats a question for the IRS trying to solve our deficit problem. Have a good evening everyone. Bob