16.4 Deducting Real Estate Taxes

Your payments of state, local, or foreign real estate taxes on your non-business property are deductible on Schedule A (Form 1040). The tax must be based on the assessed value of the property and the assessment must be based on a uniform rate imposed for public purposes. See 16.5 for deductible and nondeductible assessments for local benefits.

The monthly mortgage payment to a bank or other mortgage holder generally includes amounts allocated to real estate taxes, which are paid to the taxing authority on their due date. Mortgage payments allocated to real estate taxes are deductible in the year you make the payments only if the mortgage holder actually pays the taxes to the tax authority by the end of that year. Typically, banks will furnish you with a year-end statement of disbursements to taxing authorities, indicating dates of payment.

See 16.5–16.7 for further details on real estate taxes.

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Cooperative Apartments
Tenant-stockholders of a cooperative housing corporation may deduct their share of the real estate taxes paid by the corporation. However, no deduction is allowed if the corporation does not own the land and building but merely leases them and pays taxes under the lease agreement (15.9).
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Who may deduct real property taxes.

A person who pays a property tax must have an ownership interest in the property to deduct the payment. The following table summarizes who may deduct payments of real property taxes.

Table 16-2 Who Claims the Deduction for Real Estate Taxes?

If the tax is paid by— Then it is deductible by—
You, for your spouse Neither, if your spouse has title to the property, and you each file a separate return. This is true even if the mortgage requires you to pay the taxes. The tax is deductible on a joint return.
You, as owner of a condominium You deduct real estate tax paid on your separate unit. You also deduct your share of the tax paid on the common property.
Your cooperative apartment or corporation You deduct your share of real estate tax paid on the property; see 15.9. But if the organization leases the land and building and pays the tax under the terms of the lease, you may not deduct your share.
A life tenant A court allowed the deduction to a widow required to pay the taxes under a will for the privilege of occupying the house during her life.
A tenant The tenant of a business lease may deduct the payment of tax as additional rent, not tax. The tenant of a personal residence may not deduct the payment as either a tax or rent expense, unless placed on the real estate assessment rolls so that the tax is assessed directly against him or her; see 16.6.
You, as a local benefit tax to maintain, repair, or meet interest costs arising from local benefits You deduct only that part of the tax that you can show is for maintenance, repair, or interest. If you cannot make the allocation, no deduction is allowed. If the benefit increases the value of the property, you add the non-deductible assessment to the basis of the property.
You, where your property was foreclosed for failure to pay taxes You may not deduct the taxes paid out of the proceeds of the foreclosure sale if your interest in the property ended with the foreclosure.
Tenant by the entirety or joint tenant A tenant who is jointly and severally liable for the tax may deduct it if it is paid with his or her separate funds. If a husband and wife own real estate as joint tenants or as tenants by the entirety, taxes paid by either of them may be deducted on their joint return, or if they file separately, by the spouse who pays the tax from his or her own funds.
Tenant in common When property is owned as a tenancy in common, under an IRS rule, a tenant may deduct only his or her share of the tax, even if the entire tax was paid. However, the Tax Court may allow a co-tenant to deduct the full amount if it is paid from his or her separate funds and the payment protects against the possibility of foreclosure in the event the other co-tenants failed to pay their share of the taxes (9.2).
A mortgagee No deduction. If tax is paid before the foreclosure, it is added to the loan. If paid after the foreclosure, it is added to the cost of property.
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