Tax Tips Blog

Debbie writes:I can pay my property taxes in 2007 and claim them in 2007, or pay them in January and claim them for 2008. In 2007 we are in a higher tax bracket than we will be in for 2008. So, it makes sense to use the property tax (and state income tax) deduction this year, but only up until the point when it would trigger AMT, right? In other words, the most efficient way to work it would be to pay as much of the property tax bill in 2007 as would bring our AMT amount close to the regular tax amount, right? Or, do I go ahead and pay the whole property tax bill and state tax in 2007 because I’m in a higher bracket? Thanks!

My reply: Hello Debbie! Assuming they do not change the law, and they are working on it, so they might, then you have the right idea.

Ideally, you’ll time matters so that you reduce the amount of your 2008 regular tax liability precisely down to your 2007 AMT liability. Anything higher wastes some of the available deduction, because payment of state taxes does not reduce your AMT liability. Anything less causes you to pay more than necessary in 2007, because you have failed to reduce your regular tax liability to the AMT amount.

By the way, to the extent you overshoot, and end up “wasting” some of your state income tax deduction, keep track of that. If you get a state income tax refund, some of it will be attributable to the “wasted” deduction, and therefore won’t be taxable.

Again, all the above is assuming they do not change the law.

Best wishes,

Gina

If reviewing your assessed value of your home is not a regular routine, given the current real estate trend, you may want to start making it one. Property tax bills are generated by taking the assessed value of your home and multiplying that value by the tax rate for the area where your home is located.

Your assessed value is suppose to come close to the fair market value of your home. If home prices are dropping, then your assessed value should be dropping as well, but it rarely does.

If you believe the house values in your neighborhood have been dropping confirm this by calling a realtor. Ask them for a print out of the recent sales prices of homes in your area. This is public information so there should be no problem obtaining this information.

Your neighbors assessed values are also public information. In most counties this information is available online. In others you may have to take a trip down to your local tax office - it’s usually worth the trip.

Take a look at how your assessed value compares to the recent sales in your neighborhood as well as the assessed values of your neighbors. Make sure that your property is listed accurately. The number of rooms, square footage of your house all make a difference when they compute your assessed value. Maybe you had an outbuilding that you removed years ago, but the tax office still believes you own it. It would reduce your assessed value if you had them correct your records.

Make a list of everything you believe would reduce the sales price of your home, if you were to list it for sale - wallpaper, akward floorplan, bad curb appeal, etc. Make sure your tax office has a copy of this list so they take it into consideration.

Many homeowners who challenge their property tax assessment succeed in reducing their property taxes, so it’s usually worth your effort to make sure your home value is properly stated.

Dales writes:Hello, Have a question about deducting property tax. I purchased property from my sister. I have been paying her property taxes for some time now, and I understand that I was not able to deduct this from my federal taxes (even though she could deduct what I paid since she owns the property). Since I purchased her property this year, I want to know if I can now deduct all payments made in 2006, or only payments made after the sale. Thanks very much!

My reply:Hello Dale! Thanks for visiting. I hope you sister did not deduct the property taxes that you paid on her behalf, because the only taxpayers who can deduct real estate taxes are those who are both legally obligated to pay the tax and actually pay the tax. Therefore, you are only able to deduct the taxes you paid after you owned the property. Best wishes, Gina