How do you deduct property tax payments from your federal income taxes in a year when you both sold and bought property in Illinois?

Answer 1

For the property you sold, you may have property taxes you already paid that year before the sale. Additionally, you will give the buyer a credit for property taxes accrued up to the date of the sale. Deduct both of these amounts. For the property you purchased, you may pay property taxes after the purchase. The seller gave you a credit for the taxes due up to the date of purchase. Deduct the credit from what you paid. If any remains, you may deduct it on Schedule A. If the credit is for more than you paid, you should carry the remaining credit forward to the next year and deduct it from what you paid. Many Accountants will simply deduct the entire credit from all of the payments in the same year. While this is technically incorrect, it is easier, and eliminates the likelihood you will forget to carry the remaining credit forward. I've never had the IRS object to this treatment. Example: Paid property tax in June $2,000 Sold property in July, gave buyer credit 4,000 Bought property in July, got seller credit -5,000 Paid property tax in September 2,500 Total paid during year is $2,000 + 4,000 + 2,500 - 2,500 (credit) = $6,000 and carry a $2,500 credit from buyer to next year, or Total paid during year is $2,000 + 4,000 + 2,500 - 5,000 (credit) = $3,500 and no credit carried forward.