When you buy a home, property taxes are a closing cost, an item that can add hundreds or possibly thousands of dollars to your bill. A share of property taxes paid by the previous owner may be assigned to you in your contract. By carefully examining this part of your closing costs, you may spot an error, fix it and save money.
Property Taxes
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Local governments charge real estate taxes to cover services. These services include the school district, road maintenance and other city services, including parks and recreation. Property owners may receive separate tax bills for city and county services or one bill reflecting all property taxes.
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Closing
At the time you close on the purchase of your home, property taxes should be paid up. Otherwise, the taxing authority would have a lien on the home. Homeowners pay property taxes ahead of time, which means that when you close on the home, the previous owner has already paid some of the taxes for the future. Contracts usually require the buyer to reimburse the seller for advance tax payments. For example, if you close on your home Nov. 1 and the seller has paid the taxes through Dec. 31, then you're responsible for paying two months of real estate taxes to the seller. If the annual taxes are $1,200, then you'll see a $200 real estate tax expense on your closing costs for the two months you owe.
Adjusted Taxes
The local taxing authority may send you an additional tax bill after closing if the previous owner benefited from a discount, such as a tax exemption for senior citizens, and you don't qualify. The tax collector can adjust your taxes to remove the discount, and bill you to make up the difference.
IRS Deduction
You can deduct the real estate taxes you paid at closing and the real estate taxes you paid for the remainder of the calendar year on line 6, Schedule A of Form 1040. Those taxes are part of your total itemized deductions for the year, an amount you will transfer to Form 1040, line 40. If you receive a rebate on property taxes, you must adjust your tax deduction accordingly. If you agreed to pay delinquent property taxes on the home, money owed by the seller in a previous tax year, you cannot deduct those monies. Instead, you would add that cost to your basis, the total amount you paid for your home.