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Lev
Lev, Tax Advisor
Category: Tax
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Hello. I have a question about deducting real estate taxes

Customer Question

Hello. I have a question about deducting real estate taxes on Schedule A on my 1040. A couple of years ago I used to pay my taxes separately from my mortgage. Then the bad economy hit me and I defaulted on my real estate taxes. My mortgage company/bank paid it for me and created an escrow account.They started charging me for the current montly escrow account as well as for the back real estate taxes they paid for me. For two years I was paying my mortgage back for the old taxes plus they colected and paid the new ones for me. However at the end of 2011 I had some more money left and decided to pay back my mortgage company and paid the total negative balance on my escrow account. During the whole calendar year I paid total of $7852 to my escrow account and ended the year with a 0 escrow balance. They on the other hand only reported that I have paid $4451 for the whole year, which is the exact real estate tax for 2011. I argued with them and insist them to change it to the amount that I really paid $7852. I am no expert, but isn't real estate tax deductible in the year paid, not when it occures. How do I deduct the excess over the $4451, that I acctually paid. Thanks for your time.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to Just Answer!
Real estate taxes are deducted when they are paid to taxing authority - not when the money were transferred to the escrow account.
When the mortgage company paid real estate taxes for you and created a negative balance on your escrow account - that means - they loaned you the money which were used to pay real estate taxes. When you paid back a loan is irrelevant.
You may not deduct your payment to the escrow account - you may only deduct payment made to taxing authorities.
To be deductible, the tax must be imposed on you and must have been paid during your tax year.
So - on your 2011 tax return - you may deduct only the amount you paid (or paid on your behalf) to taxing authorities.
If real estate taxes were paid in previous years - and you did not deduct these payments - you may amend your past tax returns and correct that mistake. If you are due a refund - it will be issued to you if correction is made withing three year statute of limitation.
See for reference - http://www.irs.gov/taxtopics/tc503.html

If a portion of your monthly mortgage payment goes into an escrow account, and periodically the lender pays your real estate taxes out of the account to the local government, do not deduct the amount paid into the escrow account. Only deduct the amount actually paid out of the escrow account during the year to the taxing authority.

Sorry if you expected differently.

Be sure to ask if any clarification needed.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 1 year ago.


Thanks for the answer. As I was writing you my question this started poping up in my head. It does make a perfect sense even if I want it to be otherwise. I just checked the year before and actually my mortgage company did report that I paid more(the amount they paid for me) eventhough I had not yet paid it back. So I guess I already got the benefit when I deducted that. Thank you once again.

Expert:  Lev replied 1 year ago.
I am glad to be helpful.
Sorry if your expectations were different.
However - the good thing is that you used that deduction and it was not wasted.
Be sure to come back for all your tax related issues.

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