Author Topic: Bought and Sold Home - Unsure what taxes can be deducted  (Read 605 times)

dhbike01

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Bought and Sold Home - Unsure what taxes can be deducted
« on: March 05, 2017, 04:12:55 PM »
Home Purchase
Closed on 06/30/2016
I paid full taxes, X, in December 2016 for tax year 2016
Sellers pro-rated portion of 2016 taxes, Y, reduced closing costs. Note: pro-ration was not correct in the Sellers favor, but as I read the tax rules it does not matter when determining how much can be deducted.
If I understand correctly, I DO NOT get to deduct X (total tax) - Y (sellers portion at closing)
Instead, I can deduct 185 / 366 * X, where 185 is the number of days in the home including the closing date, and X is the full tax amount.
Does this part seem correct?

Home Sold
Closed on 07/13/2016
Pro-rated portion of 2016 taxes was subtracted from my bottom line at closing.  Note: Again, the pro-ration was not correct in my favor this time.  Seems to be a trend.
As I understand it, I should be able to deduct 194 / 366 * X, where 194 is the number of days in the year I owned the home, and X is the total 2016 taxes.
Here is the kicker: The Buyers did not pay the 2016 taxes until January, 2017.
It seems that I may not be able to deduct my portion of the 2016 taxes on the home sold for the 2016 tax year.  Does this seem correct?
If not, can I deduct my portion of the 2016 taxes in the 2017 tax year?


Thanks for any help.
« Last Edit: March 05, 2017, 04:17:08 PM by dhbike01 »

Drifterrider

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Re: Bought and Sold Home - Unsure what taxes can be deducted
« Reply #1 on: March 06, 2017, 06:19:56 AM »
You are entitled to deduct the actual amount of taxes you paid, in the year you paid them (if you are on a cash basis). 

Per your post, you bought and then sold within 30 days.  Is that correct?

dhbike01

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Re: Bought and Sold Home - Unsure what taxes can be deducted
« Reply #2 on: March 09, 2017, 07:31:13 PM »
Yes, the closing on the homes was 13 days apart.

Here is one link to an IRS document that suggests how much you paid has nothing to do with how much you can deduct.

https://www.irs.gov/publications/p530/ar02.html#en_US_2016_publink100011838

Division of real estate taxes.   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. You (the buyer) are treated as paying the taxes beginning with the date of sale. This applies regardless of the lien dates under local law. Generally, this information is included on the settlement statement you get at closing.
  You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. You each can deduct your own share, if you itemize deductions, for the year the property is sold.


Example.

You bought your home on September 1. The property tax year (the period to which the tax relates) in your area is the calendar year. The tax for the year was $730 and was due and paid by the seller on August 15.

You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). You figure your deduction for real estate taxes on your home as follows.

1.  Enter the total real estate taxes for the real property tax year  $730
2.  Enter the number of days in the property tax year that you owned the property  122
3.  Divide line 2 by 366  .3333
4.  Multiply line 1 by line 3. This is your deduction. Enter it on Schedule A (Form 1040), line 6 $243

  You can deduct $243 on your return for the year if you itemize your deductions. You are considered to have paid this amount and can deduct it on your return even if, under the contract, you did not have to reimburse the seller.

SeattleCPA

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Re: Bought and Sold Home - Unsure what taxes can be deducted
« Reply #3 on: March 10, 2017, 05:53:42 AM »
You can make this easier with a simple example...

Say your taxes run $10 a day. Say you lived in the home 100 days. In this case, your property tax deduction equals $1000 because $10 a day for 100 days equals $1,000.

And then what if you paid (or were allocated on the closing statement) something more or less than $1,000? You treat that as an adjustment in the sales price.
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dhbike01

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Re: Bought and Sold Home - Unsure what taxes can be deducted
« Reply #4 on: March 10, 2017, 07:41:09 PM »
Thank you.  That simplifies it.  On the house I sold, if they paid the tax in January 2017, will I have to wait until next year to deduct my share of the taxes from 2016?