Page 100 - 2020 Publication 17

14:38 - 19-Jan-2021
Page 98 of 138
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
(May 3 to December 31, including their date of sale, the seller is entitled to a 2020 tax deduc-
Worksheet 11-1. Figuring purchase). They figure their deduction for taxes tion of $933. This is the sum of the $680 for
Your State and Local Real on their new home as follows. 2019 and the $253 for the 123 days the seller
owned the home in 2020. The seller must also
Estate Tax Deduction Worksheet 11-1. Figuring Your include the $933 in the selling price when he or
Keep for Your Records State and Local Real Estate Tax she figures the gain or loss on the sale. The
1. Enter the total state and local real estate Deduction — Taxes on New Home seller should contact the Browns in January
taxes for the real property tax 2021 to find out how much real estate tax is due
year . . . . . . . . . . . . . . . . . . . . for 2020.
2. Enter the number of days in the real 1. Enter the total state and local real estate $732
property tax year that you owned the taxes for the real property tax year . . . Form 1099-S. For certain sales or ex-
property . . . . . . . . . . . . . . . . . 2. Enter the number of days in the real changes of real estate, the person responsible
3. Divide line 2 by 365 (for leap years, property tax year that you owned the for closing the sale (generally, the settlement
divide line 2 by 366) . . . . . . . . . . . . property . . . . . . . . . . . . . . . . 243 agent) prepares Form 1099-S, Proceeds From
4. Multiply line 1 by line 3. This is your Real Estate Transactions, to report certain infor-
deduction. Enter it on Schedule A (Form 3. Divide line 2 by 365 (for leap years,
1040), line 5b . . . . . . . . . . . . . . divide line 2 by 366) . . . . . . . . . . 0.6639 mation to the IRS and to the seller of the prop-
Note. Repeat steps 1 through 4 for each property you bought 4. Multiply line 1 by line 3. This is your erty. Box 2 of Form 1099-S is for the gross pro-
or sold during the real property tax year. Your total deduction is deduction. Enter it on Schedule A (Form ceeds from the sale and should include the
the sum of the line 4 amounts for all of the properties.
1040), line 5b . . . . . . . . . . . . . $486 portion of the seller's real estate tax liability that
Real estate taxes for prior years. Don’t di- the buyer will pay after the date of sale. The
vide delinquent taxes between the buyer and Since Dennis and Beth paid all of the taxes on buyer includes these taxes in the cost basis of
the new home, they add $246 ($732 paid less
seller if the taxes are for any real property tax $486 deduction) to their cost of the new home. the property, and the seller both deducts this
year before the one in which the property is (The sellers add this $246 to their selling price amount as a tax paid and includes it in the sales
sold. Even if the buyer agrees to pay the delin- and deduct the $246 as a real estate tax.) price of the property.
quent taxes, the buyer can’t deduct them. The Dennis and Beth's real estate tax deduction For a real estate transaction that involves a
buyer must add them to the cost of the property. for their old and new homes is the sum of $215 home, any real estate tax the seller paid in ad-
The seller can deduct these taxes paid by the and $486, or $701. They will enter this amount vance but that is the liability of the buyer ap-
buyer. However, the seller must include them in on Schedule A (Form 1040), line 5b. pears on Form 1099-S, box 6. The buyer de-
the selling price. ducts this amount as a real estate tax, and the
seller reduces his or her real estate tax deduc-
Examples. The following examples illustrate Example 2. George and Helen Brown tion (or includes it in income) by the same
how real estate taxes are divided between bought a new home on May 3, 2020. Their real amount. See Refund (or rebate), later.
buyer and seller. property tax year for the new home is the calen-
dar year. Real estate taxes for 2019 were as- Taxes placed in escrow. If your monthly
Example 1. Dennis and Beth White's real sessed in their state on January 1, 2020. The mortgage payment includes an amount placed
property tax year for both their old home and taxes became due on May 31, 2020, and Octo- in escrow (put in the care of a third party) for
their new home is the calendar year, with pay- ber 31, 2020. real estate taxes, you may not be able to deduct
ment due August 1. The tax on their old home, The Browns agreed to pay all taxes due af- the total amount placed in escrow. You can de-
sold on May 7, was $620. The tax on their new ter the date of purchase. Real estate taxes for duct only the real estate tax that the third party
home, bought on May 3, was $732. Dennis and 2019 were $680. They paid $340 on May 31, actually paid to the taxing authority. If the third
Beth are considered to have paid a proportion- 2020, and $340 on October 31, 2020. These party doesn’t notify you of the amount of real
ate share of the real estate taxes on the old taxes were for the 2019 real property tax year. estate tax that was paid for you, contact the
home even though they didn’t actually pay them The Browns can’t deduct them since they didn’t third party or the taxing authority to find the
to the taxing authority. On the other hand, they own the property until 2020. Instead, they must proper amount to show on your return.
can claim only a proportionate share of the add $680 to the cost of their new home. Tenants by the entirety. If you and your
taxes they paid on their new property even In January 2021, the Browns receive their spouse held property as tenants by the entirety
though they paid the entire amount. 2020 property tax statement for $752, which and you file separate federal returns, each of
Dennis and Beth owned their old home dur- they will pay in 2021. The Browns owned their you can deduct only the taxes each of you paid
ing the real property tax year for 127 days (Jan- new home during the 2020 real property tax on the property.
uary 1 to May 6, the day before the sale). They year for 243 days (May 3 to December 31).
figure their deduction for taxes on their old They will figure their 2021 deduction for taxes Divorced individuals. If your divorce or sepa-
home as follows. as follows. ration agreement states that you must pay the
real estate taxes for a home owned by you and
Worksheet 11-1. Figuring Your Worksheet 11-1. Figuring Your your spouse, part of your payments may be de-
ductible as alimony and part as real estate
State and Local Real Estate Tax State and Local Real Estate Tax taxes. See Payments to a third party in Pub.
Deduction — Taxes on Old Home Deduction — Taxes on New Home 504, Divorced or Separated Individuals, for
more information.
1. Enter the total state and local real estate 1. Enter the total state and local real estate
taxes for the real property tax year . . . $620 taxes for the real property tax year . . . $752 Ministers’ and military housing allowances.
If you are a minister or a member of the uni-
2. Enter the number of days in the real 2. Enter the number of days in the real formed services and receive a housing allow-
property tax year that you owned the property tax year that you owned the ance that you can exclude from income, you still
property . . . . . . . . . . . . . . . . 127 property . . . . . . . . . . . . . . . . 243 can deduct all of the real estate taxes you pay
3. Divide line 2 by 365 (for leap years, 3. Divide line 2 by 365 (for leap years, on your home.
divide line 2 by 366) . . . . . . . . . . 0.3470 divide line 2 by 366) . . . . . . . . . . 0.6639
4. Multiply line 1 by line 3. This is your 4. Multiply line 1 by line 3. This is your Refund (or rebate). If you received a refund
or rebate in 2020 of real estate taxes you paid
deduction. Enter it on Schedule A (Form deduction. Claim it on Schedule A
1040), line 5b . . . . . . . . . . . . . $215 (Form 1040), line 5b . . . . . . . . . . $499 in 2020, you must reduce your deduction by the
amount refunded to you. If you received a re-
Since the buyers of their old home paid all of The remaining $253 ($752 paid less $499 de- fund or rebate in 2020 of real estate taxes you
the taxes, Dennis and Beth also include the duction) of taxes paid in 2021, along with the deducted in an earlier year, you generally must
$215 in the selling price of the old home. (The $680 paid in 2020, is added to the cost of their include the refund or rebate in income in the
buyers add the $215 to their cost of the home.) new home. year you receive it. However, the amount you
Dennis and Beth owned their new home Because the taxes up to the date of sale are include in income is limited to the amount of the
during the real property tax year for 243 days considered paid by the seller on the date of deduction that reduced your tax in the earlier
Page 96 Chapter 11 Taxes