real estate tax paid at closing- where deductible?

[kathyc2]

I always thought- perhaps incorrectly- that real estate taxes paid at closing could be taken either to reduce gain or as a Sch A deduction.

I have a situation where client was gifted 1/2 of mothers residence in 2013 and then it was sold in 2014. In Indiana RE taxes are delayed a year- 2013 liability is paid in 2014 and they are an adjustment item on HUD statement, which the cash paid out to seller. It is more beneficial to client to have the RE tax reduce gain than it is to take on A.

I'm not finding anything that says I can use it as a reduction, but then again nothing specifically saying I can't, other than not being listed as selling expenses in Pub 523.

Can anyone point me to where a yes or no answer is on this?

[TXEA]

Real estate taxes can not reduce gain. They can only be allocated to Schedule A or Schedule E (if rental property).

Exception:

If the buyer of the property pays tax that were due in arrears (i.e. delinquent) that the seller owed, then the back taxes (not the current taxes) are treated as an increase in basis to the buyer.

[Roland Slugg]

I always thought- perhaps incorrectly- that real estate taxes paid at closing could be taken either to reduce gain or as a Sch A deduction.

No, that is not the case. R/E taxes are deductible only as an itemized deduction on Schedule A. (Of course, if the taxes are on rental property or on property used in a business, they are deductible on Schedule E, C or F, as he case may be.) The costs and expenses that may be subtracted from the selling price, to arrive at the gain on sale, are "costs to sell," and these are exactly that ... costs to sell. The term includes real estate commissions, escrow fees, title insurance, and the various other fees and expenses incurred solely because of the sale of the property. Real estate taxes are a cost of owning property, not buying or selling it.

Can anyone point me to where a yes or no answer is on this?

TTB, Code §63(d), Code §164, the instructions for Schedule A (F-1040), IRS Pubs 523, 530 and/or 544 ... to name a few.

[kathyc2]

Well, at least I found that I did not pull my understanding out of thin air.... Pub 551 states:




The costs you can choose to deduct or to capitalize include the following.


•Carrying charges, such as interest and taxes, that you pay to own property, except carrying charges that must be capitalized under the uniform capitalization rules;