Splitting Real Estate Taxes and SD Taxes

[RNuse09]

have a client whose real estate tax payments are paid through an escrow account. They moved into the house in June of 2011 and their escrow paid the full amount ofSD taxes in July. Would they be able to deduct all of the sd taxes the escrow paid. Or are they required to split the real estate taxes based on how long they lived their for the year. Thanks for the help. I know the taxbook says to split the real estate taxes but it seems weird to me that the clients escrow account paid the full amount.

[KBTS]

They should be able to deduct the entire amount. School District taxes in PA run on a fiscal year basis of 7/1 to 6/30. Since client was owner of the house in June, they were responsible for entire tax amount in the new fiscal year. Bank probably made them put a large amount in escrow at settlement in order to pay the taxes. You may want to ask to see settlement statement from house closing to see if they had to pay the previous owner back for a portion of property taxes up until date of closing.

[FEDUKE404]

Allocate between owners

have a client whose real estate tax payments are paid through an escrow account. They moved into the house in June of 2011 and their escrow paid the full amount ofSD taxes in July. Would they be able to deduct all of the sd taxes the escrow paid. Or are they required to split the real estate taxes based on how long they lived their for the year. Thanks for the help. I know the taxbook says to split the real estate taxes but it seems weird to me that the clients escrow account paid the full amount.

What the escrow paid is more or less irrelevant.

You need to check the closing statement (HUD-1) as it is likely the prior owner "paid" about half of the 2011 taxes at the time of closing.

The tax bill goes with the owner, but it is unlikely the current owner can deduct 100% of the 2011 property taxes "paid" as he was in all likelihod reimbursed part of that amount at closing.

The reverse side of the argument also applies: The previous owner may not have "paid" any 2011 county property taxes directly, but he can certainly deduct the amount he reimbursed the owner, at time of closing, for those taxes based upon the time period he owned the home.

Just remember ALWAYS to have the HUD-1 form in hand for these situations!!

FE

[BP.]

We pay forward in PA and school taxes are paid around that time of the year for the upcoming 12 month period, so it is all deductible since it was all paid from taxpayer's escrow.

But, look at the HUD-1 to see if the sellers were reimbursed by your clients for any taxes sellers paid forward beyond their ownership period.

[FEDUKE404]

Clarification

Not at all irrelevant, but the starting point to figure deduction minus any reimbursements as shown on HUD-1.

OK - bad choice of words - how about "a good place to see what of possibly several payments for perhaps a different tax year with a different owner might have been made" ?

Better?

FE

[BP.]

OK - bad choice of words - how about "a good place to see what of possibly several payments for perhaps a different tax year with a different owner might have been made" ?

Better?

FE

Not better. A real estate escrow account for taxes here in PA would be owner-specific, and for all taxes paid from that escrow account in that year, and for actual taxes paid from the account, not that "might" have been paid.

[BP.]

Not at all irrelevant, but the starting point to figure deduction minus or maybe plus any reimbursements to either party as shown on HUD-1.

[FEDUKE404]

O K

Not better. A real estate escrow account for taxes here in PA would be owner-specific, and for all taxes paid from that escrow account in that year, and for actual taxes paid from the account, not that "might" have been paid.

Sheesh.....

Well, we don't ALL live in The Commonwealth of Pennsylvania!

I hereby retract all personal reference to any escrow accounts as being anything other than on par with the Sacred Texts of whatever religion you choose to follow.

FE

[RNuse09]

Property Taxes

Property taxes run from Jan - Dec correct? And they ussually go out in Feb.

[BP.]

Well, we don't ALL live in The Commonwealth of Pennsylvania!

That's good . . . our booze laws here are even more twisted!

[BP.]

We often have three property tax bills in PA-
school district- July
county- March
municipal (if applicable) - also springtime (Mar-Apr?)

[Gary2]

Property taxes run from Jan - Dec correct? And they ussually go out in Feb.

Did I miss where you said which state you're in?

In MA, municipalities run on a 7/1-6/30 fiscal year. Most use quarterly billing, with August, November, February, and May bills.

Thus, if the closing is July 15, the seller will typically need to reimburse the buyer for 15 days of taxes - unless the seller already paid the August bill. The seller will be able to deduct that payment, while the buyer won't be able to use that amount as a deduction. On the other hand, if the closing is September 15, the buyer will need to reimburse the seller for 15 days of taxes, which will be deductible by the buyer.