Prorated Real Estate Tax Example

The following are examples of prorated real estate taxes:



Example 1:
On August 1st, Mr. Jason Allen purchased a home.  The
property tax year in his area is the calendar year 2011 (This
normally isn't the case but let's keep things simple).  The tax for the
year was $1,600 and was due and paid by the seller on July 15.

Jason owned the home during the property tax year for 153 days
(August 1 to December 31, including the date of purchase).  He
would figure his deduction for real estate taxes as follows:

1) Real Estate Taxes for the property year        $1,600.00
2) # of days Jason owned the property                           153
3) Divide line 2 by 365 (# of days in year)                   .4192
4) Multiply line 1 by line 3.                                         $   670.72 

Thus, Jason can deduct $670.72 for the year if he itemizes his
deductions.  By the IRS guidelines, Jason is considered to have
paid this amount and can deduct it even if, under the contract of
sale, he did not have to reimburse the seller. 

Note that if Jason does not reimburse the seller, he must adjust
the cost basis of his home by the amount of the deduction that the
seller paid for him.

Example 2:
Jen De Leon purchased a home on September 1.  The property tax
year (the period to which the tax relates) in her area is the calendar
year.  The tax for the year was $730 and was due and paid by the
seller on August 15.  Jen owned the home during the property tax year
for 122 days (September 1 to December 31).    Jen would figure her
real estate taxes as follows:
 
  1. Real Estate Taxes for the year
  2. # of days Jen owned the property
  3. Divide line 2 by 365 (# of days in year)
  4. Multiply line 1 by line 3
   $730.00
    122 days
           .3342
  $243.97
 

Jen may deduct $243.97 on her tax return for the year if she itemized her
tax deductions.  Jen is considered to have paid this amount and can
deduct it on her tax return even if, under the sales contract, she did not
have to reimburse the seller.

Seller's Deduction in Excess of Property Tax
 If in the year before the sale of the property, the seller deducts an amount
for taxes in excess of the allocated property tax amount, the excess must
be reported as income in the year of the sale. 

Example 3:
Sylvester owns a home and his taxes are due on November 30, 2010 in the
amount of $1,000.  Sylvester pays the 2011 tax on the November 30th date. 
On June 30, 2011, he sells his home. 
Sylvester is allowed to deduct only $493 of the tax:

1) Real Estate Taxes for the property year        $1,000.00
2) # of days Jason owned the property                           180
3) Divide line 2 by 365 (# of days in year)                 .49315
4) Multiply line 1 by line 3.                                         $   493.15 

There are 180 days in the period from January 1, 2011 to June 29, 2011.

Since Sylvester already deducted the full $1,000 on his 2010 tax return, he
must report as income that part of the tax deduction that he was not
entitled to.
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