Property tax and Home Association fee

Discussion in 'After Hours Lounge (Off Topic)' started by Jay H, Feb 6, 2006.

  1. Jay H

    Jay H Producer

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    I bought a home in 2005, Yay, Property Tax Credit on my 2005 taxes. I did my state taxes on saturday so to offset this humongous 20 year mortgage, I can rejoice in tiny things like my first property tax credit from NJ for 2005.

    Do homeowner association fees count as property taxes? I don't think so but I figured I better ask. I am in a lake community (small lakes, three of them) with a $400/yr HO association fee.. Since I only closed in december, my property tax share was little and I took the $50 default credit that the state allows you to do but hey, it's something....

    Jay
     
  2. CameronJ

    CameronJ Stunt Coordinator

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    Technically for your federal return you should only be deducting the actual taxes paid to the taxing authority. Most likely no taxes were paid in 2005 by the escrow agent to the taxing authority, so you technically shouldn't claim any deduction.
     
  3. Jay H

    Jay H Producer

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    Oh... oops, yes the escrow account paid 2005 taxes. But since I still have my worksheet that I used when I went to the closing, it spit out the exact dollar amt I paid for 2005 city/state taxes so I used that amt. However, this was NJ State tax, not my federal 1040 form, but I doubt that makes a difference...

    [​IMG]

    Jay
     
  4. Mike OConnell

    Mike OConnell Second Unit

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    This question is actually pretty easy. You SHOULD have received a statement from your mortgage lender that indicates both the following:

    Personal property tax payments made by escrow on your behalf in 2005.

    Interest paid by you on the loan in 2005.

    Homeowners insurance paid by the escrow on your behalf in 2005.

    The amount indicated as tax payments made is the amount you can deduct from your taxes. However, it gets more complicated in the year that you close on a property. If you closed on October 1 and property taxes of $1200 for 2005 were due in Septemebr, the previous owner would have paid the entire years property taxes ($1200), but on closing you would have owed the previous owner $300 for the taxes they paid, your escrow statement for 2005 may indicate $0 for taxes paid in 2005, but your closing would indicate $300 - you could deduct $300.

    If you closed on October 1 and the property taxes for 2005 were due in November, the previous owner would have paid you $900 for their share of the taxes on closing and the escrow account would have paid out $1200 in November to the taxing authority. Your 2005 Escrow statement would indicate $1200 paid in 2005, but your closing statement would indicate that you had received $900 from the previous owner to pay their share of the taxes and that money would have went directly into your escrow account. You still can only deduct $300.

    So on the year you close you would normally pay the prorata amount of taxes based on the closing date of the sale.

    Remember, paying into an escrow for future tax payments can't be deducted, only the payments made to the taxing authority on your behalf by the escrow account.

    Taxes are fun!

    Mike
     
  5. Jay H

    Jay H Producer

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    Hmm, OK Mike, it looks like I fall under plan 2, the seller paid the whole year's prop tax and my escrow paid for a prorated amt which was indicated on my closing sheet. I used that amt for my property tax credit worksheet. I got a letter from my mortgage lender and I think after looking at it, it only indicated amt of interest paid in '05, though perhaps I missed it but I looked at the skinny sheet sent to me to see if it listed the property tax I paid but it was only a mortgage thing and I dug up my closing sheet to find out the amt of prop tax I paid for my ~month of ownership.

    Hope the IRS police doesn't come after me. I think my difference in the tax rate was only $34 given the short time I owned the place in 05 so I took the $50 default amount rather than the full value anyway.

    Jay
     

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