Property tax credit on closing statement

Forum|Forum|1 year ago
February 11, 2025
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We received a $2,000 credit for property taxes on the closing statement. How do I account for this on the tax return? In Colorado Taxes are paid for the prior year (we're paying in June 2025 the 2024 property taxes). We purchased the property with 110 days left in 2025.

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DavidD66

Since the seller had already paid the property tax for 2025, at closing, you had to pay the seller for the portion of the tax for the period you would own the home. You just report that the same way you would if you had received a tax bill from your county and written them a check. To do so in TurboTax Online:

Make sure you are logged in and working in your return
Click on the Search Icon Magnifying Glass
Type in Property Tax
Click on "Jump to property tax"
Answer "Yes" to "Did you pay property or real estate taxes?
Enter the property tax you paid in the "Property taxes on your main home"

If you sold a house in 2024, you may have paid, or been paid for property tax at the closing for the house, depending on the timing of the sale vs payment date for the property tax. You may need to adjust the amount you entered above accordingly.

If you received a Form 1098 for mortgage interest, it may show property tax paid. If so, you can enter that amount when you enter your Form 1098, but do not also report it in the Property Tax section. You might need to adjust the amount of the 1098 if you were paid for property tax at the closing of the sale of your house.

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ronljamesAuthor

David,

Thank you for the quick response.

Unfortunately I think you misunderstood what I wrote. The seller did not pay the taxes for 2024 because they aren’t due until June 2025 and the seller no longer owns the property. I own the property and will pay the property taxes for 2024 in June 2025.

I received a credit for the portion of the year the seller owned the property in 2024. I will use that credit to pay the 2024 property taxes in June 2025.

Do I record that credit as income since I’m doing cash accounting and not accrual? And then as an expense in 2025? Do I simply ignore it and pay the property taxes in June 2025 and then expense them on my 2025 return in 2026?

Thanks

Ron

ThomasM125

You should ignore the credit and apply it to your property tax bill next year.

For real estate taxes paid at settlement, the buyer is allowed to take a deduction for their share of property taxes for the year even though the seller may have paid them. In your case, the taxes won't be paid until the next year, so the credit is a prepaid discount applicable to the amount due, and as such you should reduce the amount paid in the next year by the credit when determining the amount of property tax you can deduct in 2025.

Just as prepaid taxes are not deductible, a prepaid tax credit would not be taxable.

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