I'm confused. I bought my first home in late 2007 (lived there for 3 mos and 1 week in 2007). Got my tax statement from my mortgage co, saying that my "real estate taxes paid" was equivalent to a whole year's worth of taxes. How could that be when i only lived there for one-quarter of the year? Is the buyer sometimes responsible for the whole year in which he purchased?
Also, i cannot find where I paid this large sum! I checked my closing documents and crunched a bunch of numbers, but i don't see where this $ came out of my pocket.
Does the mortgage co just "even out" this cost, within my monthly payments. Please help me understand

You paid all of the taxes to the government, but were credited back the part you didn't live there by the seller, at closing.

I don't believe the seller gets to claim the property taxes (meaning you get all of the deduction), but I'm not totally sure. My boyfriend took all the deductions on the house, so I didn't have to find out for sure.

Biker Goddess is correct - bring your closing statement to the accountant. You will see the credit for Property taxes from the seller. The accountant will tell you what is deductible on your income taxes.

More explanation: In some cities, real estate taxes are assessed one year and paid the next; in other cases there is a 6 month lag. If your community has the same policy, then you deduct on your income tax only those taxes you paid that are attributable to the part of the year you lived in the home. Even though you paid the mortgage co. for the seller's part of the year, the seller, and not you, gets to deduct these taxes on the 1040. As BG said, the seller gave you the $ for his/her part of the year's taxes at closing, which reduced your expenses then. In a way, what you did was transfer his/her $, plus your $ for the rest of the year, to your mortgage co., who then paid the real estate tax bill.

disclaimer: I'm not an accountant but I did stay at a Holiday Inn Express last night. REL's advice is good - or you can check your closing documents again to look for a partial year credit of real estate taxes to you, contact your local real estate tax office, and look up the info on the IRS website.

"DECOR8," Know this seems overwhelming trying to figure out but it really is simple. However you may need to have a CPA do your taxes this year so you don't mess it up!

First, when you closed the title company pro-rated the taxes the Seller owed vs. the ones you would owe; pro-rated them and gave you a credit on the closing statement to pay Sellers portion when the next tax bill came due.

However you can only claim that portion of the tax for which you are actually responsible. The rest went into your bank account and you have probably already spent it without knowing it.

A very simplistic example would be to say that a person buys a property on October 1 in an area that allows twice a year real property tax payments. Assume the tax is $12 a year (what a dream!) so each month the cost for taxes is $1.

You bought the house on October 1 and Sellers had not yet paid the taxes from July 1-Oct 1 because they are not due yet; the closing statement would give you a credit of $3 for the months of July/August/September knowing you will have to pay the second half of the year tax payment to keep current.

In the closing statement, you got a credit of $3 to pay the Sellers' share of the taxes. Now for your tax return, you can only claim the amount you paid for the months of Oct/Nov/Dec as the Sellers already paid the months before closing to you as a credit toward their cost.

Probably this is clear as MUD but just suggest you have a qualified CPA file your taxes for this year. The good news is that this taxable event only happens upon buying or selling so you should be "good to go" for the next year or so unless you buy/ sell or move frequently.

Edited to Add: OP, you might want to check your statements to determine exactly how much is being added to your monthly payment each month by your lender to cover real property taxes and insurance costs and PMI if applicable and then stay on top of those figures so you're current.

PS. Since you can't find where this amount came from that was paid; I have to correct my above post and think that, just possibly, it was sent directly from your closing statement to your new lender, put into your escrow account for taxes and insurance and paid from there...

Not to worry; all is good. Just make sure you have a CPA review your tax returns before filing in order to make sure you claim all of the deductions you are entitled to. Good luck!

This message has been edited. Last edited by: Idaho Resident,

I also suggest a CPA for first time homeowners. This way, things do not get missed. A good CPA will know whether or not points need to be ammoritized throughout the loan or if you can take credit for them all at once. Some years, I can take the normal deduction, some years I'm able to itemize my return.

I always save all my home repair reciepts. Not that I can claim very much of it off my taxes, but, things like energy effiecent items, I can. But my CPA lets me know which ones I should hold on to for the future in case I sell the house, I can use those reciepts to offset any capital gains or other fun garbly goop.

Tax preperation fees are deductible from your next years taxes, so it's worth spending a little money. You kind of get it back the following year.

I am sorry but I must respectfully disagree with the advice to see a CPA or an accountant. Not all CPAs and accountants are tax knowledgable. It is a small portion of the CPA exam and unless they are specifically in a tax practice, they may not have kept up on the latest tax laws.

I am an Enrolled Agent, which is the only kind of tax professional which is credentialed by the Federal government. Enrolled Agents are required by law to have a minimum of 24 hours of tax related education each year (I have had over 50 hours each of the last 3 years).

Dirty secret about CPAs and tax attorneys: Many of them have the actual tax preparation done by non-credentialed temporary preparers and then charge you as though the return had been prepared by the CPA or lawyer himself. I have seen plenty of tax returns prepared by a CPA firm that contained obvious errors.

The tax firm that I work for (you would recognize the name if mentioned it - it is a well known national chain) has many people, credentialed and not, who have lots of experience dealing with situations exactly like yours. I personally would feel confident going to an experienced tax professional in my company if I were in your situation. We are not cheap, but we charge a lot less than most CPA firms, and we are generally able to prepare the return while you are there.

quote:

Originally posted by Jeff_H:
I am sorry but I must respectfully disagree with the advice to see a CPA or an accountant. Not all CPAs and accountants are tax knowledgable.

I am an Enrolled Agent, which is the only kind of tax professional which is credentialed by the Federal government. Enrolled Agents are required by law to have a minimum of 24 hours of tax related education each year (I have had over 50 hours each of the last 3 years).
(snipped stuff)
The tax firm that I work for (you would recognize the name if mentioned it - it is a well known national chain) has many people, credentialed and not, who have lots of experience dealing with situations exactly like yours. I personally would feel confident going to an experienced tax professional in my company if I were in your situation. We are not cheap, but we charge a lot less than most CPA firms, and we are generally able to prepare the return while you are there.

I also work for one of the national tax preparation chains. Some of the most goofed up returns I've seen have come from CPAs.

I'm not even an enrolled agent and I still have to take 30 hours of classes every year.

I've been doing taxes 6 years now and I do tons of home owners and home sellers.

SQ

Most people these days equate a CPA to blank blank Block. It's easier to say CPA than blank blank block. But, my last experience with one, was with someone who obviously didn't know tax law from a hole in the wall. Tried to tell me that interest and re taxes were not tax deductible and on top of it all, failed to state my income on my state taxes, and I got fined double what I should have paid. Since then, I have been doing my taxes myself, as I obviously know alot more now then the people they choose to hire in my town. But I do know a CPA, who does offer me advise when I get stuck. He does check my returns for me, and so far, I've been right every time. He spent many years in college studing tax law and can repeat verbatem just about every new tax law.

This message has been edited. Last edited by: Renee Johnson,