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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!
by Scott D - ex-QnA on November 2nd, 2008
If you were about to get around to asking whether you can keep or assign the income to the prospective buyer, that is entirely up to you. Clearly define this in the Purchase Agreement to avoid misunderstandings a year from now.
If you have any follow-up questions, please leave a comment.
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