Can I Deduct Property Tax Paid This Year That Was Due a Previous

The IRS has a simple rule for many personal deductions, including the property tax you pay on your home. You deduct the expense when you pay for it. In other words, if you pay your property taxes early, you can claim the deduction early, and if you pay your property taxes late, you have to claim the deduction late, as well, but you don't lose the deduction.

Do You Itemize Your Deductions?

To claim your late-paid property taxes as a deduction, you must itemize deductions in the year that you actually pay them. Generally speaking, itemizing deductions makes sense as long as all of your itemized deductions, which include your property taxes, California state income taxes, mortgage interest, and a number of other things, add up to more than your standard deduction. That deduction in the 2012 tax year is $5,950 for a single person or $11,900 for a married couple filing jointly. Scenarios exist that can lead you to choose not to itemize and deduct your late property tax payment. For example, if you and your spouse failed to make your Nov.1, 2011 property tax payment until you sold your house on Jan. 31, 2012, you would end up making the payment in the 2012 tax year. If you went back to being a renter during 2012, you probably would not generate enough write-offs to justify itemizing your deductions for the 2012 year, so you would claim the $11,900 standard deduction and pass on the ability to write off that late property tax payment.

Claiming Previous Year's Taxes

Claiming the payment you made this year for last year's taxes is easy to do. All that you do is add up all of the payments that you made for taxes, as opposed to payments for penalties, and enter them on line 6 of the Schedule A form where you report your itemized deductions. Since doing this might lead to your actual tax payments for the year not matching your tax bill, you should save the cancelled check or payment receipts from your tax payments for the year so that you can substantiate what you did.

Limitations on Property Tax Deductions

Deducting your property taxes has a few limitations. The biggest one is that you must itemize your deductions to do it. The other limitation comes about if you are subject to the Alternative Minimum Tax. This special tax, which affects a number of middle-income earners in California, particularly those who are married and have children, eliminates many of your deductions. In this event, you cannot claim your property tax deduction.

Late Tax Payment Strategy

With all of this in mind, you might be able to reduce your income taxes by creatively timing the payment of your second tax payment, which is due on Nov. 1, but not delinquent until Dec. 10. If you make that payment late, you will incur a non-deductible 10 percent penalty, but you might come out ahead. One example of this is if you pay Alternative Minimum Tax one year, but know that you will not pay it in the next year. If your property tax payment is $3,000, you will pay a $300 penalty to pay it late, but if your combined tax rate is 25 percent, you will gain a $750 tax write-off by doing this. If you choose to creatively time your tax payments, talk to an accountant or attorney who can both advise you on how much you save as well as advise you on the risks of losing your property that can come with late property tax payments.