Real Estate Taxes Come in the Form of Property Taxes
or Capital Gains Taxes

Real estate property taxes are the tax that government charges on “real property” each year, through state and local governments. The tax amount is levied according to the market or actual value of the property, and differs in percentage amounts around the United States. To find out what percentage of real estate taxes are in your region, get in touch with your local government authority.

Property taxes have to be paid and if they are not kept current, it is possible for the local authority to foreclose on a property where the real estate tax has been delinquent over a period of time. If you are a homeowner, it is possible to deduct real estate tax payments on your property, provided you have the option of itemized tax deductions. The IRS allows you to claim real estate tax on both the home you are living in, and any other homes you may own. At present, there is no limit to the number of homes you can claim deductions for, or the amount of real estate taxes you can claim.

Property taxes can be paid under three different conditions:

During the year: Generally, real estate accounts are sent out in two installments, one payable in June and the second payable in November.

At the time of settlement: If a house is sold during the year then the seller and the buyer are responsible for the real estate taxes dependent on what proportion of the year each person was responsible for the house. The new owner of a property becomes liable for the real estate tax on the date of sale. So if a house was sold on March 30th 200X then the original owner would be responsible for the taxes from January 1st 200X until March 31st of the same year and the new owner would pay starting April 1st 200X. If the property taxes were calculated at $1000 for the year, then the seller would owe 90 days @ $2.73 per day or an approximate total of $245.70 and the buyer would owe 275 days @ $2.73 or an approximate total of $750.75 for the same year.

Inclusion in mortgage repayments: Quite often if you have taken a mortgage out to buy a home, the bank will include the amount of real estate taxes owed each year with your mortgage repayments to ensure that you don’t fall behind with tax payments during the course of your loan. These amounts are still deductible by the homeowner, but you must ensure that the amount of tax you are claiming deductions for, is the same amount of tax that was paid during the financial year. Sometimes the financial year you have been making payments on is different from the financial year observed by the IRS.

Getting the Most of Your Investments: Real Estate Taxes and the Capital Gains Tax