Your Tax Questions Answered
Unmuddying the Property Tax Deduction
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
By Kevin McCormally, Editorial Director, Kiplinger.com
January 22, 2010
QUESTION:
I am a volunteer tax preparer for AARP and there has been considerable debate about the increased standard deduction for property tax that was given last year.
According to IRS Pub. 525, pg. 22 some of that is taxable but the example is unclear. Calls to the IRS have been futile. Do you have any insight about this.
KEVIN ANSWERS
I agree that the example offered in the publication muddies the water rather than clearing them. Here’s my understanding of the rule.
First, it only applies to people who deduct property taxes on their 2008 return and then, in 2009, received a refund of part of those taxes paid. Since there are limits on how much property tax can be added to the standard deduction amount ($500 for singles, $1,000 for joint returns), you would report a refund as income in 2009 only if – and to the extent that – the refund reduced the property taxes paid for 2008 to less than the add-on to the standard deduction.
Let’s say you paid $1,500 in property taxes and, as a single person, added $500 to your standard deduction. Then, in 2009, the city refunded $500 of the taxes paid in 2008. Subtracting that from $1,500, means you really paid $1,000 of tax for 2008. And, since that still more than the $500 deduction you claimed, there would be no recovery, no additional taxable income in 2009. But, if you got a $1,200 refund, bringing your 2008 tax bill to $300, you’d have to report $200 as income, allowing the IRS to recover the $200 by which the $500-add-on to the standard deduction exceeded the $300 you actually paid for the year.
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Reader Comments (1)
Posted by: C. Barnard at 03/31/2010 05:01:14 PM
I am a 2 yr cancer survivor. My Dr's recommend taking a number of vitamin supplements daily. I have to buy fairly expensive vitamins that are absorbable, called celluar vitamins, like a pharmaceutical drug is made. In additon, I have a GI problem, IBS, and take probiotics as recommended by my doctors. This was believed to be caused by antibiotics given to fight an infection after my surgeries. They are available OTC. I have notes written by the Dr's as to what to take, but not the brands. Are these deductible? Thank you...