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Okay, so last year I purchased a home. The way taxes are done in this area of the country, the homeowner pays for taxes the year after s/he lives in the home. So, I closed the end of May last year...and the sellers paid me the 2nd tax payment in 2003 and for 5 months in 2004.

When I filed taxes for 2003, I itemized my deductions, but I did not include property taxes in my itemization since I did not pay the taxes. I was planning to claim 1/2 year's taxes on my 2004 return.

I just read publication 530 again, and it looks like I perhaps should have itemized the property taxes.

Can someone please clarify for me what I should have done...and then further, should I file an amendment to my tax return? As I figure it, the number of days I owned the house x total taxes=$1135.

-b-
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For itemizing, look at when you PAY the property tax, not the period the tax covers. Add up what you paid during 2003, subtract off whatever amount the seller actually gave you for taxes in 2003, and that is your deduction.

--Peter
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Peter,

Okay, that is what I did. But the tax publication indicates that it doesn't matter who pays, you deduct during the period you lived in the house. At least that's how I interpreted it. But I've been confused by tax publications before.

So, the sellers paid me for about 12 months worth of taxes when I closed, so I wouldn't start deducting them from my taxes until this year's tax return, correct?

-b-
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Okay, that is what I did. But the tax publication indicates that it doesn't matter who pays, you deduct during the period you lived in the house. At least that's how I interpreted it. But I've been confused by tax publications before.

So, the sellers paid me for about 12 months worth of taxes when I closed, so I wouldn't start deducting them from my taxes until this year's tax return, correct?


Could you provide a direct reference, since that doesn't look correct? A cash basis taxpayer always deducts based on when the money moved, not when he lived in a property. And the deduction only goes to the person who paid the bill.

Ira
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But the tax publication indicates that it doesn't matter who pays, you deduct during the period you lived in the house. At least that's how I interpreted it.

I believe the correct interpretation is that you can't deduct property taxes UNLESS you own the house. Once you own the house, then you figure the taxes to deduct based on when you PAID the tax.

You're trying to make this too difficult. It's really pretty simple. Decide if you own the property. If you do, deduct the taxes when you pay them (less any reimbursements you actually receive).

--Peter
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You're trying to make this too difficult.

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. You make up for it on the other end.

Phil
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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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Okay, you all explained it as I understood when I filed taxes. I just got confused when I reread the IRS publication.

So I'm glad I don't need file an amendment. But here's my next question...

I might be selling my home and moving to a new state this year. I will pay 12 months worth of taxes at that point across 2 different tax years. Should I deduct all my property taxes in one year on federal and state taxes, or do I split them across 2 years?

-b-
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I might be selling my home and moving to a new state this year. I will pay 12 months worth of taxes at that point across 2 different tax years. Should I deduct all my property taxes in one year on federal and state taxes, or do I split them across 2 years?

Again, you're making this too complicated. The "real estate tax year" is irrelevant. The only thing that matters is the calendar year in which you make the payment. If paid this year, they're deductible this year.

Ira
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okay, this is what I thought but I decided to second-guess myself instead.

Thanks so much for your help. One and all.

-b-
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