Property tax deduction

[madhavok]

Hey,

Bought my first DVC contract last year and paid the buyer all 2015 annual fees. Do you think I can deduct the property tax portion? If so how would I figure out the portion?

 

[ktmo]

Look at your annual dues statement. It breaks it all down and you can see how much was paid for property tax.

 

[LisaS]

As stated, the information you need is on the dues statement you received in the mail. It's also available on the website. Look for the line item "actual property tax paid" or something to that effect. We pay estimated property taxes as part of our dues. At some point they get a bill for the actual property taxes and then provide us that figure in our annual dues bill.

 

[Dean]

Hey,

Bought my first DVC contract last year and paid the buyer all 2015 annual fees. Do you think I can deduct the property tax portion? If so how would I figure out the portion?

If the seller paid them and you reimbursed them for it I don't think so but you may want to check with your tax person to be sure. If you did take the deduction I think the future risk of or with an audit is minimal.

 

[LisaS]

According to IRS Publication 530 (https://www.irs.gov/publications/p530/ar02.html#en_US_2015_publink100011838):

You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year.

If you reimbursed the buyer for the 2015 annual fees as part of your closing, it sounds to me like it is deductible. I would do it in your situation but I am not a tax expert and do not know if there are other IRS rules that override the one quoted above.

 

[supersnoop]

Taxes are deductible by the person who pays them. If you reimbursed the seller, you didn't pay them. Do what you fell you can defend if you're audited.

 

[LisaS]

According to this article: http://www.nolo.com/legal-encyclope...-estate-taxes-the-year-you-buy-your-home.html the buyer and seller should each deduct a pro-rated share of the property taxes, regardless of who actually paid them.

 

[Dean]

According to IRS Publication 530 (https://www.irs.gov/publications/p530/ar02.html#en_US_2015_publink100011838):

If you reimbursed the buyer for the 2015 annual fees as part of your closing, it sounds to me like it is deductible. I would do it in your situation but I am not a tax expert and do not know if there are other IRS rules that override the one quoted above.

To take the deduction technically I suspect the contract would have to specify the division of taxes, just reimbursing for the dues without addressing the taxes directly likely wouldn't technically qualify to deduct them but I can see either side of that argument.

 

[miTnosnhoJ]

If you use a CPA, bring your closing statement along when you bring him or her your tax documents.

 

[madhavok]

I didn't pay the dues directly to DVC, rather reimbursed the seller for the total amount. Since I prepare my own taxes, I'm unclear of the IRS rules on this. I suppose the safe play is to just forget it this year.

 

[LisaS]

Reimbursing a seller for part of the property taxes is a common practice when real estate changes hands. It's normally spelled out in the closing documents when you buy or sell a house. For example, if the seller paid the property tax for January through June but closes on the sale of the house on March 31, then the buyer will reimburse the seller at closing for taxes paid for April-June. The buyer does not send a check to the taxing authority, but rather gives the money to the seller as part of the closing, usually through an intermediary (the closing attorney). This is a case where reimbursing the person who paid the tax does not preclude someone from taking the deduction.

The only difference I see with DVC is that when you reimburse the seller for the dues, it may not be split out to indicate exactly how much of the 2015 dues was for the actual property taxes. In this situation I would still take the deduction but pro-rated for the period when I owned the contract. I would make sure I saved my closing docs and the breakdown of the 2015 dues to show the actual property taxes for that year in case I ever needed to justify the deduction.

If the IRS did question my deduction, I would provide a copy of my closing docs showing the dues reimbursement plus the dues breakdown showing the property tax portion and also point to the relevant section of IRS Publication 530 (linked above). Someone is entitled to take the deduction and based on the NOLO article I linked above, a split based on the time each party owned the property is the way to handle it. Nobody is committing fraud here, so there is no reason to fear the IRS in this situation. Again just my opinion as someone who does her own taxes and is not a CPA nor a tax attorney. You need to do whatever helps you sleep at night.

 

[Dean]

I didn't pay the dues directly to DVC, rather reimbursed the seller for the total amount. Since I prepare my own taxes, I'm unclear of the IRS rules on this. I suppose the safe play is to just forget it this year.

You could contact the seller and be sure they're not deducting them as well. A simple phone call to the effect that you're deducting them since you reimbursed for the fees and wanted to make sure they didn't do so also. Regardless I think the risk is dramatically small in this situation.

 

[LisaS]

Regardless I think the risk is dramatically small in this situation.

I agree. The IRS has bigger fish to go after than someone who takes a $100 property tax deduction that he/she is entitled to take but who may not be able to produce a closing statement with the property tax reimbursement broken out. It would cost the IRS much more money to audit someone for this than the tax and penalty they might recover.

You could contact the seller and be sure they're not deducting them as well.

Personally, I wouldn't bother with this. I would pro-rate the property tax and deduct the amount pertaining to the time I owned the contract. The seller should do the same. If the seller deducts the entire amount, that is their mistake and should not prevent me from taking the deduction I'm entitled to take. I wouldn't feel comfortable contacting the seller to discuss tax deductions.

 

[YourEveryDayAdam]

I would say take the deduction. If you get audited, the worst they will do is disqualify the deduction and you'll owe them $25 or so you would get for taking the deduction.

 

[supersnoop]

I would say take the deduction. If you get audited, the worst they will do is disqualify the deduction and you'll owe them $25 or so you would get for taking the deduction.

I think the worst part, besides the $25 plus penalties and interest, would be the simple fact that you'll have to go through the audit. And, once they find a discrepancy, they can start opening up previous years. The audit alone could cost you thousands.

 

[LisaS]

I think the worst part, besides the $25 plus penalties and interest, would be the simple fact that you'll have to go through the audit. And, once they find a discrepancy, they can start opening up previous years. The audit alone could cost you thousands.

Just curious what it is about a $100 property tax deduction that you think would be a red flag to the IRS that could trigger an audit?

If taking a deduction for the property tax paid on our DVC contracts is an audit trigger, we are all subject to being selected for an audit and nobody should claim the deduction for fear of being audited. I cannot recall a single report here of someone being selected for an audit due to taking this deduction.

 

[supersnoop]

Just curious what it is about a $100 property tax deduction that you think would be a red flag to the IRS that could trigger an audit?

If taking a deduction for the property tax paid on our DVC contracts is an audit trigger, we are all subject to being selected for an audit and nobody should claim the deduction for fear of being audited. I cannot recall a single report here of someone being selected for an audit due to taking this deduction.

I didn't say I thought it would trigger an audit. I was responding to a post that assumed the "worst case" was repaying the taxes owed if you are audited. Audit's can be triggered for any number of reasons. But, if the IRS finds something they think is an error, they will likely increase the scope and duration of the audit. You may have only made one single $25 error, but that correspondence audit will turn into an office or field audit. And the one-year audit could turn into a three-year audit.

Unless the property taxes are specifically enumerated on your closing statement, I don't believe they qualify for the deduction. And I'm not going to open myself up to such and in-depth audit over $25. I will, however, write off all property taxes that I pay. As I said before, don't write it off unless you're comfortable defending it to the IRS.

 

[LisaS]

I remember 10 years or so ago there were some awful stories in the news about the IRS going after some small business owners, making their lives hell for years as they went back through years worth of tax returns, even when those being audited had done nothing wrong. I don't believe the IRS operates this way any longer and I just don't see how a very small tax deduction, one that the taxpayer is logically entitled to in the first place, would ever trigger that kind of reaction from the IRS.

I had my taxes done professionally for a couple of years when I transitioned to being self employed. The guy who did them gave me some advice: "Take every deduction you are entitled to but save all the paperwork to back it up. The IRS only goes after people who commit fraud and provided you never cross that line you have nothing to worry about. Never pass up a deduction you are entitled to out of fear that the IRS might come calling." I have followed that advice ever since and have never had an issue that I couldn't clear up quickly and easily with a phone call or by submitting a few pieces of documentation and a cover letter.

 

[supersnoop]

The guy who did them gave me some advice:

Guess who charges by the hour when you need help dealing with the IRS.

 

[LisaS]

Guess who charges by the hour when you need help dealing with the IRS.

I guess we'll just have to agree to disagree on the issue of deductions. When it comes to taxes, I pay what I owe but I see no reason to pay more than I owe. If I'm entitled to a deduction and I have the documentation to back it up, I take it. I've never had an issue with the IRS due to deductions I've taken.