Legal Question in Tax Law in Illinois

Propert tax federal deduction

I am trying to determine if my assumption about federal real estate tax deduction is correct. I sold my home in February of 2005. Since our real estate taxes for CY2004 are payable in 2 installments during 2005, and it was too early in the year for either installment to be paid, we paid the buyer a credit of about $5,000. This $5,000 is an estimate (fairly accurate) of the entire tax bill for CY2004 for the buyer to use to pay it.

Additionally, I closed on my new home in December 2004 (prior to selling old home). So in essence I owned two homes briefly (for about 3 weeks) in 2004. I also paid a pro-rated tax bill for the new home (about $300) in 2005 for the three weeks of home ownership in 2004.

So my questions is this; can I claim this entire $5,000 I paid to the buyer of the house I sold AND the $300 I paid for real estate taxes on my new home? Also, how does the IRS know that I paid this $5,000 to the buyers as normally the mortgage company, through an escrow, would pay and report this to the IRS?

Hope this makes sense, thank you for your time and advice.


Asked on 11/11/05, 10:11 am

1 Answer from Attorneys
Cyndi Perez Trostin

Re: Propert tax federal deduction

Real estate taxes are deductible in the year in which they were paid which results in a higher-than-normal tax being paid in the year a home is sold and a new one purchased.

As long as the money has actually been paid over to the taxing body, or, in this case, to the buyer, it should be deductible to you.

Your evidence of payment would be cancelled checks, your 1098 (year-end statement from the mortgage company), if any, and your closing statement showing evidence of the credit for property taxes.

This answer is based on the information you set forth in your posting and should only be used as a basic guideline.

For an accurate answer based on all of the pertinent information available, you should have a tax adviser review the documents.

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Answered on 11/11/05, 7:53 pm


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