Late Property Taxes

[DaveO]

Client paid their property taxes late and was charged interest. Is this deductible? I can't find anything one way or the other. Late fees on a mortgage are treated as interest but this would not be interest to aquire and isn't Home Equity interest but the collection is certainly secured by the property.

[S T]

Personal

I can't find it in the Pubs - however, a few discussions intimated, that the interest on the property tax (late pay) for personal residence and 2nd home , would be included in the "non-deductible" group as personal interest

Also found a prior discussion on this http://www.thetaxbook.com/forums/showthread.php?t=4969 This was interesting, but I have not reviewed.

Sandy

[Gretel]

I agree with Sandy for personal property.

However, interest for late payment for property used in a business is deductible.

[FEDUKE404]

No go on penalty & interest

I can't find it in the Pubs - however, a few discussions intimated, that the interest on the property tax (late pay) for personal residence and 2nd home , would be included in the "non-deductible" group as personal interest

Also found a prior discussion on this http://www.thetaxbook.com/forums/showthread.php?t=4969 This was interesting, but I have not reviewed.

Sandy

Interesting.....I thought this would be an easy "find."

Absent a specific rule/prohibition, I would tend to take this approach for property taxes:

PENALTY: Something not based on the actual value of the property (requirement for a deductible property tax) and therefore not deductible.

INTEREST: Best I can come up with is to take the "personal interest" approach, which also fails the test.


Things could get a bit interesting for a similar issue for rental property. The "violation of law" Section 162(f) aspect mentioned in the thread might come into play for the "late taxes" (aside from tax based upon value of property requirement) whereas without digging too much further the interest assessment could likely be deducted.

FE

[Davc]

When I did research on this several years ago I found that it was specifically mentioned as not deductible for personal use property..

[DaveO]

Thank you all for the input. I could make an argument either way in my head. This involves farm land and a personal residence. The taxpayer had refi'd the properties and thought the taxes were being paid from escrow until he got the certified letter notifying him they intended to auction his property at a tax sale. It totaled over $1000 over a couple years.

[taxmom34]

I can't remember any of my clients having late paying fees for property taxes, (lucky me), but i remember when i started working as a preparer more than 30 years ago, we would take the statement of taxes and just took the bottom line (which would have included penalty and interest) for schedule A. when i went on my own no clients had those added fees so i never noticed if laws had changed to seperate those fees and when they changed.

[JohnH]

At that time, interest would have been deductible, so the only question would have been whether any penalties were included in the bottom line figure.

[FEDUKE404]

Taking the proactive approach

I can't remember any of my clients having late paying fees for property taxes, (lucky me), but i remember when i started working as a preparer more than 30 years ago, we would take the statement of taxes and just took the bottom line (which would have included penalty and interest) for schedule A. when i went on my own no clients had those added fees so i never noticed if laws had changed to seperate those fees and when they changed.

Going even further........

Aside from any penalty/interest issues, even with a "normal" property tax bill, I now always ask to see the bill itself.

Many (in NC!) real property tax bills now include non-deductible fees such as for recycling.

Many (in NC!) personal property tax bills include local county/city vehicle registration fees.

None of those can be deducted as a tax because the amount is NOT based upon the value of the underlying asset. (The dead giveaway is when you see charges showing up in even dollar amounts.)

This approach would even include verifying "taxes" shown on an annual statement from the mortgage company. For comparison, do you now still use only a canceled check for verifying a cash contribution??

I would rather be safe than sorry. Better to have a client mumbling "But Joe Kitchen-Table Guy never did it that way!" than for me to have to explain to an IRS person how I missed something so obvious. Fortunately, most counties now have public tax records viewable online. Others will play games with you....."Yeah, it's public information but I can't give it to YOU!"

FE

[Gary2]

This approach would even include verifying "taxes" shown on an annual statement from the mortgage company. For comparison, do you now still use only a canceled check for verifying a cash contribution??

When it's a common practice to include non-deductible items in the property tax bill, then asking to see the bill instead of relying on the mortgage statement is reasonable.

But there are times when a canceled check is the only legitimate evidence of a contribution.

Either way, if the client walks in with a home-made spreadsheet showing deductions such as taxes and donations, you might want to ask questions to make sure they know the rules, but you're under no obligation to see the underlying documentation unless there's something questionable. See Circular 230, 10.34(d).

[FEDUKE404]

Slight clarification

When it's a common practice to include non-deductible items in the property tax bill, then asking to see the bill instead of relying on the mortgage statement is reasonable.

But there are times when a canceled check is the only legitimate evidence of a contribution.

Either way, if the client walks in with a home-made spreadsheet showing deductions such as taxes and donations, you might want to ask questions to make sure they know the rules, but you're under no obligation to see the underlying documentation unless there's something questionable. See Circular 230, 10.34(d).

True on the "obligation" aspect, but I bet most of my clients have no idea what they pay for recycling fees, city car registration, and the like. They are pretty well (gently) "trained" now to give me the actual bills, and fortunately my county has very good online public records. I'm not the type to charge extra for a couple of mouse clicks here and there. That access also covers the issues when folks pay right on the edge of the calendar year, i.e. you can wait until around January 5th or so to pay "without penalty" but doing so obviously may delay your deduction until the following/next tax year. And then for those who do incur penalties/interest, their "bill" is a lot more useful than their check.

As for the contribution thing, if it's >$250 you better have an "official" receipt of course. Rest assured I make that requirement very clear to my clients! That also covers situations where someone has a check made to the church but the funds were actually to pay personal expenses for a trip to the beach for Little Johnny with his Sunday School friends. And then we also have those Christmas tree sales.

FE