I have a question about taking the Illinois Property Tax Credit on my individual tax returns:
My siblings and I inherited a residential building from our parents, who are deceased. We placed the property in a land trust, with all of us as equal beneficiaries.
This is the principal residence for 2 of us - my sister and I, and has been so for at least 25 years.
My sister is on the contract as the primary administrator, but because I have the income, I have been paying the property taxes for a number of years. I also had to take out some personal loans to do so.
Neither my sister nor I have ever claimed any property tax credits on our individual income taxes.
QUESTION: Can I still claim the property tax exemption even though I am neither the "owner" nor the administrator?
1 Answer from Attorneys
Generally, the IRS allows an owner of real estate holding title through a land trust to ignore the land trust as a separate entity, and deduct the relevant mortgage interest and real estate taxes on his or her personal income tax return as if he or she owned the land in fee simple, joint tenancy or other matter where the taxpayer's name appears on title, to the extent he or she actually paid the bill. This treatment in effect treats an Illinois land trust similarly to a grantor trust.
And, if there were joint owners, for example, a house owned as tenants in common, by two or more owners, the correct federal income tax treatment is that the owner who actually paid the real estate tax or mortgage interest gets the deduction, because unpaid real estate taxes or mortgage results on a lien on the property, and thus an impairment of title. So, even though the payor is a part-owner, nevertheless, the owner is an owner and meets the requirement for taking a deduction for ALL of the taxes paid, even though a part owner.
Similar treatment is available for a co-owner of a principal residence for claiming the homeowner's exemption on the applicable real estate tax bill. The percentage of ownership doesn't have to be 100%, so as long as you meet the other requirements, you qualify for the homeowner's exemption, and, if applicable, the senior citizens and senior freeze exemptions.
In your case, you and you sister living in the home are both part-owners, and so if either of you pays the real estate taxes, the payor can claim them for both federal and Illinois purposes. My answer assumes that the power of direction in the land trust is split among all owners, and not just in your sister.
I don't know what you mean by your sister being the "administrator" because if the trust is a land trust through a bank, the bank is the administrator. IF it is a private trust, and your sister is trustee, that should not disturb treatment of the trust as a grantor trust.
So, you can amend all open years, and claim the taxes you paid, on both your federal and Illinois income tax returns. And, for the real estate tax exemption, you can file a certificate of error for all open years, and get some of your money back
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