This question involes both of my adult kids.
My daughter sold a house and my son bought a condo.
The 2018 property taxes were prorated in each deal
How do you handle property tax deduction on your 2018 taxes
Does it matter if the property taxes were paid in 2018 or 2019?
My initial thought is you can deduct the portion of the 2018 property taxes you credited with the sale of your house.
Now, what if the new owner pays the 2018 property taxes in January of 2019?
My son plans on doubling up on property taxes, paying 2018 in January of 2019 and 2019’s in December of 2019.
Does this effect the previous owners and when they can take a deduction for thier prorated portion?
My daughter sold her house. Does she have to check if the property taxes were paid in 2018 or 2019 before deducting her share?
I don’t have much knowledge in this area, but my understanding is that, at least in most jurisdictions, property taxes are prepaid (due before/ at the beginning of the year they apply to). So to pay your 2018 property taxes at the end of 2018 would generally make you significantly delinquent, although I suppose it could depend on the locality.
At a very high level, property taxes have to be assessed and paid to be deducted in that year. But of course there are intricacies.
Many states are paid in arrears. I can’t find searching the G which states aren’t. Some states seem really overly complex not aligning dates with the calendar.
My state, for example, Jan 1 is the date they’re supposed to appraise the value at as of. They mail out appraisals in march or april and you have about a month to protest. Then they certify final appraisals a couple months later. Then they send out the bills with final rates and those are due between Dec and Jan for the year that had just passed.
The proration amount at closing is not relevant. The documentation from the title co will disclaim any responsibility of a reasonable tax proration (and say that buyer/seller agree to address any difference after actual taxes are paid, which few would actually do… and a lazy title co will use prior year’s numbers regardless of availability of an actual tax estimate. Which burns the buyer if they don’t address this and property taxes increase.). IRS doesn’t care what proration is in your settlement paperwork. If you sold the house, you obviously “paid” in the year the closing happened. But the amount of actual taxes paid is just a basic proration of days the property was owned out of the year based on the actual tax bill at the end of the year, which may or may not have been even established at the date of closing.
The buyer would likewise get to deduct a basic proration, but it could fall in either that year or the next based on when it’s actually paid.
The value the tax is calculated on and the period the tax is paid for are not necessarily the same. So the fact it’s calculated on the value for the prior period doesn’t mean it’s not paid for the next period.
However, if they are paid in arrears, then you’re correct, I just figured they would be similar to a franchise type tax.
To be more specific, I hope they understands the NEW standard deduction and SALT limit and how that compares to what their itemized deductions are in 2018 and beyond.
This is the first thing they should look into before even deciding whether they need to document how much property tax they paid. If they will be taking the standard deduction, the whole question is moot. Do you know if they have considered these 2018 changes yet?
Also that itemizing means giving up the standard deduction. So if a joint return itemizes $25k, the tax savings are based off a $1k deduction since the $24k standard deduction can no longer be claimed.
Cracks me up when people are talking about how much money they are saving due to the mortgage deduction. In reality it’s not nearly as much.