Tax question?

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CoastalWinds
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Tax question?

Post by CoastalWinds » Fri Nov 15, 2019 3:57 pm

How are prop tax refunds dealt with if deducted the prior year? On a house I sold in Feb, a pro-rated portion of my pre-paid prop tax appears in form 1099-S Box 6 as “paid by buyer at closing.”
Last edited by CoastalWinds on Fri Nov 15, 2019 11:29 pm, edited 2 times in total.

kaneohe
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Re: Tax question?

Post by kaneohe » Fri Nov 15, 2019 5:25 pm


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grabiner
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Re: Tax question?

Post by grabiner » Fri Nov 15, 2019 11:23 pm

At the moment, the IRS Publication 525 linked in the previous post is the 2018 publication. Because of the SALT limit in 2018, the situation should be different in the 2019 publication, because you may not have gotten a benefit from the refund. If you itemized deductions in 2018 and reported $10,500 in state and local taxes, and then received a $500 refund, you got no tax benefit from the refund and none of it is income. If you received a $1000 refund, only $500 should be taxable.

The rule about how to report the refund, if it is income, should still be the same.

(Note that the state tax situation may be different. You might have gotten a tax benefit from the entire refund on your state tax form in 2018, and thus owe state tax on the entire refund in 2019 even if you do not owe any federal tax.)
Wiki David Grabiner

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CoastalWinds
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Re: Tax question?

Post by CoastalWinds » Fri Nov 15, 2019 11:27 pm

grabiner wrote:
Fri Nov 15, 2019 11:23 pm
At the moment, the IRS Publication 525 linked in the previous post is the 2018 publication. Because of the SALT limit in 2018, the situation should be different in the 2019 publication, because you may not have gotten a benefit from the refund. If you itemized deductions in 2018 and reported $10,500 in state and local taxes, and then received a $500 refund, you got no tax benefit from the refund and none of it is income. If you received a $1000 refund, only $500 should be taxable.

The rule about how to report the refund, if it is income, should still be the same.

(Note that the state tax situation may be different. You might have gotten a tax benefit from the entire refund on your state tax form in 2018, and thus owe state tax on the entire refund in 2019 even if you do not owe any federal tax.)
Yes, this is my situation. I itemized (Schedule A) last year, but my state income tax was $12K and technically filled up the 10K SALT cap. So I didn’t get any benefit from the prop tax.

Does this mean that I don’t owe taxes on the amount shown in Box 6 of 1099-S?

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grabiner
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Re: Tax question?

Post by grabiner » Fri Nov 15, 2019 11:33 pm

CoastalWinds wrote:
Fri Nov 15, 2019 11:27 pm
grabiner wrote:
Fri Nov 15, 2019 11:23 pm
At the moment, the IRS Publication 525 linked in the previous post is the 2018 publication. Because of the SALT limit in 2018, the situation should be different in the 2019 publication, because you may not have gotten a benefit from the refund. If you itemized deductions in 2018 and reported $10,500 in state and local taxes, and then received a $500 refund, you got no tax benefit from the refund and none of it is income. If you received a $1000 refund, only $500 should be taxable.

The rule about how to report the refund, if it is income, should still be the same.

(Note that the state tax situation may be different. You might have gotten a tax benefit from the entire refund on your state tax form in 2018, and thus owe state tax on the entire refund in 2019 even if you do not owe any federal tax.)
Yes, this is my situation. I itemized (Schedule A) last year, but my state income tax was $12K and technically filled up the 10K SALT cap. So I didn’t get any benefit from the prop tax.

Does this mean that I don’t owe taxes on the amount shown in Box 6 of 1099-S?
The IRS should have instructions to confirm that you won't owe taxes when the 2019 instructions come out, but that is the general rule; a refund is taxable to the extent that you gained a tax benefit from the original payment.
Wiki David Grabiner

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HueyLD
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Re: Tax question?

Post by HueyLD » Sat Nov 16, 2019 3:34 am

CoastalWinds wrote:
Fri Nov 15, 2019 3:57 pm
How are prop tax refunds dealt with if deducted the prior year? On a house I sold in Feb, a pro-rated portion of my pre-paid prop tax appears in form 1099-S Box 6 as “paid by buyer at closing.”
Was the house sale in February 2018 or February 2019? For which year was form 1099-S for?

Did you deduct the gross amount paid without reduction for the amount paid by the buyer? If so, in which year did you deduct the property tax?

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CoastalWinds
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Re: Tax question?

Post by CoastalWinds » Sat Nov 16, 2019 11:41 am

HueyLD wrote:
Sat Nov 16, 2019 3:34 am
CoastalWinds wrote:
Fri Nov 15, 2019 3:57 pm
How are prop tax refunds dealt with if deducted the prior year? On a house I sold in Feb, a pro-rated portion of my pre-paid prop tax appears in form 1099-S Box 6 as “paid by buyer at closing.”
Was the house sale in February 2018 or February 2019? For which year was form 1099-S for?

Did you deduct the gross amount paid without reduction for the amount paid by the buyer? If so, in which year did you deduct the property tax?
Pre-paid a full years worth of prop tax in Oct 2018 (covering Oct 2018 to Oct 2019). Sold house in Feb 2019 and received 1099-S showing the prorated amount that the buyer paid at closing (box 6 of 1099-S). When I filed my taxes for 2018, on SCH A, I put my total state income tax paid = $12K and total prop tax paid = $3K, but that total SALT of $15K got capped at $10K. So technically, the state income tax filled up the SALT cap and I didn’t get a deduction benefit from any prop tax.

How do I report this on this years return? Don’t want them to think I just ignored the box 6 number.

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HueyLD
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Re: Tax question?

Post by HueyLD » Sat Nov 16, 2019 11:48 am

In that case, you won’t have to report the amount in box 6 as income.

The year 2019 general instructions for 1040 is now available in draft format. You can fill out the worksheet on page 83 of the pdf file.

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cheese_breath
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Re: Tax question?

Post by cheese_breath » Sat Nov 16, 2019 8:40 pm

Your situation appears identical to mine. I paid my property tax in December 2018 and deducted the entire amount. I sold my house in February 2019 and was refunded the portion covering the period after closing. I'll be treating it as a taxable refund on my 2019 taxes.
The surest way to know the future is when it becomes the past.

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HueyLD
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Re: Tax question?

Post by HueyLD » Sun Nov 17, 2019 6:36 am

Cheese,

Did you actually itemize on your 2018 tax return? Was your total deduction for taxes on Schedule A limited by SALT?

SALT or not, you should fill out the worksheet on page 83 of the year 2019 general instructions for 1040 before reporting the refund as income. If you use a tax software, it should do such a calculation for you.

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cheese_breath
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Re: Tax question?

Post by cheese_breath » Sun Nov 17, 2019 8:34 am

1. Yes
2. No
3. I use TurboTax
The surest way to know the future is when it becomes the past.

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