T/P bought a house in 2016 and on the 2016 closing statement, the buyer received a credit for the 2015 taxes that are paid in 2016. The credit was more than what was actually paid in 2016. Does the T/P have to include the excess as Other Income?
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I have not seen before where the credit on close statement was higher than the real estate taxes actually paid, and just want to verify that I do have to include the excess as income???Comment
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You need to review the entire HUD-1 front and back for any entries regarding this item. This could have been an error on the part of the closing attorney or settlement agent. Who knows?
Perhaps the amount he received included penalties and interest for overdue taxes? They would not be deductible.
Bottom line is: the buyer is entitled to deduct the actual amount of real estate taxes he PAID to the locality, and for which he was legally liable. He must meet both tests, and taxes are almost always pro-rated on a HUD-1 depending on the date of settlement. If he received a credit then that is subtracted from the amount paid to the local jurisdiction for purposes of a tax deduction on Sche A. I have never seen it declared as income.Last edited by Burke; 02-02-2017, 12:28 PM.Comment
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