J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

16.7 Allocating Taxes When You Sell or Buy Realty

When property is sold, the buyer and seller apportion the real estate taxes imposed on the property during the “real property year.” A “real property year” is the period that a real estate tax covers. This allocation is provided for you in a settlement statement at the time of closing. If you want to figure your own allocations, your local tax authority can give you the “real property year” of the taxes you plan to apportion. If you are the seller, you deduct that portion of the tax covering the beginning of the real property year through the day before the sale. If you are the buyer, you deduct the part of the tax covering the date of the sale through the end of the real property year.

EXAMPLE

The real property year in East County starts April 1 and ends March 31. On July 6, 2012, you sell realty located in East County to Jones. Assume the real estate tax for the real property year ending March 31, 2013 is $1,000. You deduct $262 (⁹⁶/₃₆₆ of $1,000, since there are 96 days in the period beginning April 1, 2012 and ending July 5, 2012). Jones deducts $737 (²⁶⁹/₃₆₅ of $1,000), since there are 269 days in the period beginning July 6, 2012, and ending March 31, 2013).

The allocation of taxes between the buyer and seller is mandatory whether or not your contract provides for an allocation. However, you do not allocate taxes of a real property year when property is sold before the real property year. This rule prevents the seller ...