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by optionstrader on November 2nd, 2008
Please help me with a question on real estate property taxes. I own some vacant land. There is some rental income. I have a signed contract with the sale conditional on the buyer obtaining various government approvals. This may take well over a year. The buyer offers in the contract to pay the property taxes during this time. I checked with them recently and they are very willing to pay.
I want to handle this payment honestly from a tax standpoint, and there seem at least two ways to report it. (Currently, I deduct the property taxes from the rental income.)
The first way is that the buyer pays the property taxes directly. Would I have to report it as income on my tax return as if I actually received it (I believe it may be called constructive receipt). And would I then deduct it as property taxes (so that the net effect on my tax return would be a wash)? Or, would I report nothing as either income or expense, while the buyer deducts the property taxes on their tax return?
The second way is the buyer pays me, and then I would pay the property taxes directly. Would I report this as income and then deduct this as property taxes? Then, the net effect on my tax return would be a wash.
Thank you very much for your help!
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