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Actually, it's the state that's making it difficult (Illinois is also an "arrears" state). The net effect often is that you get no real estate tax deduction the first year you own the property, probably a reduced deduction the second year, and finally are able to deduct everything you pay thereafter.

But it's still simple in the sense that you deduct what you pay. For Federal tax purposes, you don't care what time period the property tax bill covers - all you need to know is: do I own the property, and how much did I pay.

In the first year, you pay very little and the seller reimburses you for the bill you will receive that includes their period of ownership. From a practical standpoint, that probably means you don't have a property tax deduction, since the reimbursement at closing is larger than what you pay.

From then on, you simply deduct the property tax payments as you make them. Unless the seller continues to reimburse you, in which case you simply subtract off the reimbursements as they are received from the payments that you have made.

--Peter
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