Prepaid Real Property Taxes

[rcherpak]

A taxpayer purchased a house and closed on the house on November 30, 2015. The settlement statement shows that he paid at the time of closing real property taxes on the house from November 30, 2015 thru June 30, 2016. For 2015, can he deduct on Schedule A, the full amount of the real property tax thru June 30, 2016 or just the amount from November 30, 2015 to December 31, 2015?

[ivan]

Prepaid Real Property Taxes

Since every Schedule A is only for a particular year I would agree that you can only claim the property taxes paid from Novermber 30,2015 through December 31,2015 on your 2015 Tax Return. Hope this helps.

[mastertaxguy]

Prepaid property taxes

There is, of course, a convenient chart on P. 6-2 of TTB (Individual/Deluxe Edition) which is always available to assist in dealing with these issues.

[Roland Slugg]

I would agree that you can only claim the property taxes paid from Novermber (sic: November) 30,2015 through December 31,2015 on your 2015 Tax Return. Hope this helps.

It doesn't, because it's incorrect.

Real estate taxes are allowed as a deduction for the taxable year in which they are paid. (Code §164(a)(1))

[Burke]

I agree with Roland. Real estate taxes are generally assessed once or twice per year. Some bill in arrears, and some bill in advance. We always deduct the real estate taxes paid during the year on Schedule A regardless if they cover a period of time in the next taxable year or prior taxable year. Only in the year of sale is it pro-rated by dates of ownership.

[Bonnie]

It's always the year the taxes are paid in, regardless of what year the taxes are for. Locally property tax is due Nov. Some people pay late in Jan or Feb and then maybe the next year pay on time. If that's the case they deduct 2 payments in one year.

[ttbtaxes]

And some people didn't pay their taxes for a few years and then pay them all at once. Deductible in the year paid.

[TAXNJ]

MAYBE THINKING PREPAID and another question

Maybe one of the reply posters was thinking of “Prepaid Expenses” (expense paid in advance)

For instance:
See TTB 8-23
Prepaid Expenses

In general, an expense cannot be deducted if paid in advance. This is true for both the cash and accrual methods. Examples include
prepaid interest and prepaid insurance premiums. The prepaid expense is treated as an asset with a useful life extending beyond
the current year to the year the expense is incurred. Twelve-month rule exception. The prepaid expense rule does
not apply to amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following.
• 12 months after the right or benefit begins, or
• The end of the tax year after the tax year in which payment is

However, as another reply poster referenced Code §164(a)(1)) which in general:

(a) General rule Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued: (1) State and local, and foreign, real property taxes. (2) State and local personal property taxes. (3) State and local, and foreign, income, war profits, and excess profits taxes. (4) The GST tax imposed on income distributions. (5) The environmental tax imposed by section 59A. (6) Qualified motor vehicle taxes. –

So another question, if a client says they would like to pay the next four years of real estate taxes in the current year, what do you tell the client? Yes or No?

[Lion]

They can pay whatever they want. They can deduct only what the law allows.

[TAXNJ]

Paying

They can pay whatever they want. They can deduct only what the law allows.

So they are paying the real estate taxes in the current year so why won't the law allow them? Say they want to deduct paying the real estate taxes in the current year for the next four or even 10 years if their AGI is $4m?

[New York Enrolled Agent]

So they are paying the real estate taxes in the current year so why won't the law allow them? Say they want to deduct paying the real estate taxes in the current year for the next four or even 10 years if their AGI is $4m?

The real property tax is based on the property's assessment on a annual basis. The regulations only permit real property taxes to be deducted after they are imposed on the taxpayer. Property taxes are not imposed on future tax years. Deductible when imposed and paid.

[TAXNJ]

Clear

The real property tax is based on the property's assessment on a annual basis. The regulations only permit real property taxes to be deducted after they are imposed on the taxpayer. Property taxes are not imposed on future tax years. Deductible when imposed and paid.

Thanks for clarification of the post point. Your post reply is well stated and has the key words "property's assessment on a annual basis" and "The regulations only permit real property taxes to be deducted after they are imposed on the taxpayer." - not future years.

If one receives an annual RE property tax bill imposed in 2015 that shows the 4 quarters of which 2 quarters are for 2015 and the balance runs (due) for 2 quarters in 2016 and all 4 quarters paid in 2015 it can be deducted in 2015.