Don't Forget To Add Real Estate Tax to Standard Deduction

[RitaB]

I just remembered this, and had to call two early bird clients this morning to get the RE tax amounts. Thank goodness I'm only having to re-do two returns that hadn't gotten out the door yet.

Thought I'd mention this and possibly save some of you some aggravation. Last thing we need is to be amending returns in February because client heard about the deduction from their mechanic who uses another preparer.

[Catherine]

Thanks for the reminder -- I was going to put a note in the folders of the two clients this may apply to -- I'll do that right now.

Catherine

[Granny Coral]

Just sent a client back out the door from bringing me his Form 1098 which didn't have the property tax paid info on it. He just called me to give me the amount after he had called them. Ain't we got fun. Thanks for the reminder.

Granny Coral

[imjulier]

I remember this now but I'll probably forget it by the time I start working with individuals in February. I'm sure I'll see several questions/reminders about it by then though on both this and the ATX boards.

Julie R

[mcb39]

I just had to re-do one early bird that I was ready to e-file because at 3 AM I remembered to find out about her stimulus check from last year. Bless whoever it was that gave us that site to check...I think it was Taxbilly. She is getting an additional $300 this year because she only got $300 last year. RE-do taxes. It's a good thing that I was waiting for her bank info for DD. I am not liking tax season already.

[lsowers]

I know a lot of localities don't have this, but our county's tax collector has a search on their site where we can look up RE taxes paid. Maybe worth finding out if your localities have the same. It saves me from waiting for the client to call back.

[MargaretMort]

I included a request for property tax information in the letter I sent my clients last week. Will have to remember to ask about the tax rebate from last year. Thanks for that reminder.

[Janitor Bob]

I just remembered this, and had to call two early bird clients this morning to get the RE tax amounts. Thank goodness I'm only having to re-do two returns that hadn't gotten out the door yet.

Thought I'd mention this and possibly save some of you some aggravation. Last thing we need is to be amending returns in February because client heard about the deduction from their mechanic who uses another preparer.

Does anyone know where I can find a citation for this? I have clients that will want to see this in writing.

[Dan]

Look at "1040" instructions (2008); line 39c; Realestate taxes (p. 34) "Your standard deduction is increased by the state and local real estate taxes you paid, up to $500 ($1,000 if married filing jointly). The real estate taxes must be taxes that would have been deducted on Schedule A if you had itemized your deductions."

It does mentioned in that paragraph other taxes that you cannot deduct to increase your standard deduction.

[jainen]

>> I have clients that will want to see this in writing.<<

Print the instructions to Form 1040 at http://www.irs.gov/pub/irs-pdf/i1040.pdf. It's plain as day under a big headline "What's New," and looks very official with the Statue of Liberty and everything.

[Granny Coral]

I have a question as to what happens if the following should be the case:

T/P is single with standard deduction of 5450 and pays $1635 in RE taxes ... follow the instructions as I read it you add $500 making it $5950.

But if he also has $3407 in Mortgage Interest that only then gives him a SD of $5142 forcing the $5450 to be the amt taken.

Is he required to file a Schedule A????

My brain is whirling...

[jainen]

>>5450... $1635... $500 ... $5950...$3407 ... $5142... $5450<<

I don't quite follow your math, but you seem to say that a taxpayer won't always realize the full benefit of standard deduction or of itemized deductions when the amounts are close. The answer is that a taxpayer can choose whichever is best under the specific circumstances, but can not choose what might have been better under other circumstances. Sometimes one must consider state taxes to see the whole benefit.

[Janitor Bob]

>> I have clients that will want to see this in writing.<<

Print the instructions to Form 1040 at http://www.irs.gov/pub/irs-pdf/i1040.pdf. It's plain as day under a big headline "What's New," and looks very official with the Statue of Liberty and everything.

Thanks....I have some clients who really are able to do their own taxes, but pay me to do it because they are afraid they might mess up and get the IRS after them. They are the same clients that are afraid that any tax advantage or savings I can find for them will be a "red flag" to IRS.....so I always need printed citations to share with them.

[TAXBILLY]

Be aware that all qualified real estate taxes are eligible, not only qualified personal residence tax.

taxbilly

[Janitor Bob]

Be aware that all qualified real estate taxes are eligible, not only qualified personal residence tax.

taxbilly

What if real estate taxes on a rental are already included on the Sch E? Is that amount also to be added to the standard deduction?

[Gail in Virginia]

My question about this is that I have clients who live in mobile homes. IN this area, if they don't own their land but do own their mobile home, the mobile home is taxed as personal property tax. Does that mean they do not get to add the tax on their home to their standard deduction because it is classed as personal property tax rather than real estate tax? That is the way I am reading it, but I wonder if someone else has any information to the contrary.

[michaelmars]

An i jaded by Long Island rates but except for maybe trailerparks, are anyones real estate taxes less than $1000. i think we are safe just puting in the max of 500/1000 for 90% of our standard deduction clients and only have to get real numbers from those in small co-ops etc.

[Catherine]

I included a request for property tax information in the letter I sent my clients last week. Will have to remember to ask about the tax rebate from last year. Thanks for that reminder.

I figured I'll be spending a _lot_ of time looking up stimulus rebate information myself; I can pretty much guarantee that next to none of my clients (who got anything) will remember what they got or when. The ones who _didn't_ get payments will remember that -- but I'll double-check anyway.

Catherine

[TAXBILLY]

To JB: RE taxes on Schedule E are not also on Schedule A.

To Catherine: Use the website to get stimulus payment info in a jiffy.

taxbilly

[Julie]

Yes, believe it or not, in California, our property tax is about $350 a year. This is because it's grandfathered under prop 13, which prohibited reassessment on owner-occupied homes, back in...1976 or so? At any rate, my husband already owned our home when it was passed. This is a modest little bungalow, badly in need of repairs, but, still, a real house with a yard (and no mortgage).

An i jaded by Long Island rates but except for maybe trailerparks, are anyones real estate taxes less than $1000. i think we are safe just puting in the max of 500/1000 for 90% of our standard deduction clients and only have to get real numbers from those in small co-ops etc.

[David1980]

An i jaded by Long Island rates but except for maybe trailerparks, are anyones real estate taxes less than $1000. i think we are safe just puting in the max of 500/1000 for 90% of our standard deduction clients and only have to get real numbers from those in small co-ops etc.

A lot of mine don't own a house though.

[Granny Coral]

>>5450... $1635... $500 ... $5950...$3407 ... $5142... $5450<<

I don't quite follow your math, but you seem to say that a taxpayer won't always realize the full benefit of standard deduction or of itemized deductions when the amounts are close. The answer is that a taxpayer can choose whichever is best under the specific circumstances, but can not choose what might have been better under other circumstances. Sometimes one must consider state taxes to see the whole benefit.

To clarify

Basic SD for single T/P 5450

Plus credit 500 (he actually paid 1635 in RE taxes)

Total possible SD 5950

If he files Sched A he would only get

RE tax paid 1635

Mortgage Int. pd 3407

State Sales Tax 100

total 5142

But since his Sched A isn't up to the minimum he would get that SD 5450 instead.

Does he still add the 500 to the 5142 to bring it up to the 5642 which is lower than the 5950 he would get if he didn't file a Schedule A at all......?????

Should I just delete the Sched A and add the 500 to the SD and go on???????

[Ray in Ohio]

Granny Coral....... Which is greater??

The total of his 'regular' Standard Deduction plus the $500 RE taxes ($5950)

or

The total of his itemized deductions ($5142)

"Does he still add the 500 to the 5142 to bring it up to the 5642 which is lower than the 5950 he would get if he didn't file a Schedule A at all......?????"

Isn't the $500 already included in the 5142? why would you get to add it again?

I think you are over thinking the situation and therefore creating confusion. If the total of all itemized deductions is greater than the "regular" standard deduction plus $500.... you would choose to itemize. Otherwise use the standard deduction plus $500 in RE taxes (single) if TP paid at least $500.

[Granny Coral]

Granny Coral....... Which is greater??

The total of his 'regular' Standard Deduction plus the $500 RE taxes ($5950)

or

The total of his itemized deductions ($5142)

"Does he still add the 500 to the 5142 to bring it up to the 5642 which is lower than the 5950 he would get if he didn't file a Schedule A at all......?????"

Isn't the $500 already included in the 5142? why would you get to add it again?

I think you are over thinking the situation and therefore creating confusion. If the total of all itemized deductions is greater than the "regular" standard deduction plus $500.... you would choose to itemize. Otherwise use the standard deduction plus $500 in RE taxes (single) if TP paid at least $500.

Ray, You are so right...I was including the $500 twice in my thinking.

He would be better off just deleting the Sched A and going for the Standard deduction plus $500. He had paid $1635 so would be eligible to claim the $500.

But what happens when the IRS gets a copy of his 1098 mortgage interest and he hasn't claimed it. Anything?

I am always looking on down the road, wanting to make sure I don't advise him to do something that could come back to bite him.

[JohnH]

He isn't obligated to deduct mortgage interest or any other itemized deductions. IRS won't care if there's a 1098 in their system for someone claiming the standard deduction.