 Income tax 2021-2022. Taxes you paid part number three. Get ready to get refunds to the max. Diving in to income tax 2021-2022. Most of this information can be found at the Schedule A Instructions Tax Year 2021 found on the IRS website, irs.gov, irs.gov. Income tax formula we're focusing in on the itemized deductions keeping them distinct in our mind from the adjustments to income which you might hear called the above the line deductions, the deductions for adjusted gross income, the Schedule 1 deductions when we look at the itemized deductions we're always comparing and contrasting to the standard deduction because we would only be itemizing if the itemized deductions came out to be larger than the standard deduction. Typically more well-off people are more likely for that to be the case and or people that own a home and have the big itemized deductions of the mortgage interest and the property taxes possibly also living in high income states that have the higher taxes as well. We're focused here on page one of the form 104012 a standard deduction or itemized deduction. We can see the standard deductions on the left hand side taking the itemized deduction if larger itemized deductions then being attached to another schedule called Schedule A which lists the major categories for the itemized deductions on the left hand side the total of schedule A then pulling in to line 12a if greater than the standard deduction and we want to have a general idea of the standard deductions which are these amounts on the left hand side and then there's some variance if over a certain age and or blind that you could see on the right hand side if you have those general concepts in mind then you can you can answer people's questions a little bit more clearly when it comes to whether or not they're going to be benefiting from certain type of deductions that might fall in to the itemized category. We're still focused here on the state and local taxes and we're looking here at the real estate taxes now so in prior presentations we looked at the state and local taxes the possibility to be able to deduct them some of the ones we can deduct some that we can't then we got into more of the into the weeds in terms of what kind of taxation is the state doing mainly to to basically to fund the state in general you will have usually an income tax or a sales tax as the primary tool or you might have some states that just like every kind of tax you know if you you know any tax so they have both they have all taxes but then there's and so that's going to be the primary tax that you would kind of think of that's funding the state they could possibly be deductible on the federal side the other tax that might be in place is going to be the real estate tax so real estate tax is going to be a huge one because many people their biggest investment being their home have a significant you know size in terms of value of the home therefore the real estate taxes could be significant as well so this is another one of those big items that you always want to be thinking if someone has a home then the two things that should come into your mind as a tax from a tax standpoint is one do they have interest a mortgage on it most likely how much interest are they paying on it that interest could be a key factor to push them over to being itemizing therefore having a more complex return and two what's going to be the property taxes on that property could be quite significant in terms of the property taxes especially and this is another area where if you're looking at property taxes in a high cost of living area where the home is just in general or higher again like California in New York you would expect then that the that the actual property taxes will be higher on those on those in those areas as well given your quite likelihood of going over to being able to benefit from having the itemized deductions being greater possibly than the standard deductions okay if you are a homeowner who received assistance under a state housing finance agency hardest hit fund program or an emergency homeowners loan program see publication 530 found on the irs website for the amount you can include online 5b enter online 5b state and local taxes you paid on real estate you own that wasn't used for business so if it was used for business then you might have a deduction basically somewhere else possibly so for example if it was a schedule c type of business and you had some kind of real estate taxes on it possibly for for an office type of building or something that you're paying the taxes on then you might have a deduction possibly on the schedule c because it would be an expense that was used to generate the revenue for the business and then you wouldn't be putting it basically on the schedule a you can imagine a situation by the way you might be saying well what if I use part of my home for my business because I have my own home business as I sold proprietorship in that instance then you could have a situation where you're deducting some of the real estate taxes possibly on the schedule c as something that's business related and some of them and pro rating some of them possibly on the schedule a so you can't double dip you can't deduct them in both places like we've seen in the past but you might be able to put take one on the other and there could be benefits to to deducting them in one place or the other because if you deduct them for example on a schedule c then you might also have some implications for you know like the these these self employment tax for example and because some of the deductions could be somewhat limited as the itemized deductions of course have to be greater than the standard deductions and so on for the schedule a so back to the tax here but only if the taxes are assessed uniformly at a like rate on all real property throughout the community that's usually the case unless there's some you know different thing going on for somebody something funny is going on and the proceeds are used for general community or government purposes again that's generally the case unless there's some kind of something unusual going on so publication 530 includes the deductions homeowners can take you can look at publication 530 if something funny is going on and you want to you want to determine if your deduction qualifies in those instances don't include the following amounts online 5b so not including foreign taxes you paid on real estate so we're not including the foreign taxes itemized charges for services to specific property or person so for example $20 monthly charge per house for trash collection a $5 charge for every 1000 gallons of water consumed or a flat charge for mowing a lawn that had grown higher than permitted under a local ordinance that one gets a little bit picky hey your grass is a little high over there the local ordinance in a case can't deduct those those are not the standard property that's not a standard property tax type of situation state local real estate taxes if your mortgage payments include your real estate taxes you can include only the amount the mortgage company actually paid to the taxing authority in 2021 so if you're talking about your mortgage payments as taking care of to some degree the property taxes then you're going to see that generally on the statement that you will be receiving it will typically be breaking out the deductible components that you paid you know in your mortgage the deductible components not being the principal of the loan payment being paid back but possibly the mortgage interest and we'll talk about interest in a future presentation and then possibly if they've included the property taxes that you're paying through you know the mortgage process then those will typically be broken out separately as well and that's just depending on the structure on the mortgage obviously the mortgage is structured to be a loan in general so you're paying back the loan which would be the interest and the principal on the loan the interest being kind of the rent on the loan but you might also have them taking care of basically facilitating the payment of the property taxes which isn't really related to the loan but is something that could possibly be deductible and it's kind of nice if they do it because they'll they'll give you the breakout typically on the statement so it should be pretty easy for data input although you know you don't it depends on how much you're going to pay for that you know it doesn't is it doesn't make sense to do that through the mortgage company so in any case if you sold your home in 2021 any real estate tax charge to the buyer should be shown on your settlement statement and in box six of any form 1099s you received this amount is considered a refund of real estate taxes see refunds and rebates later any real estate taxes you paid at closing should be shown on your settlement statement so when you're having an actual exchange that is taking place then it could be a little bit confusing you might have to dive into the weeds a little bit more possibly looking at the closing statements to see what happened with regards to the real estate taxes and that'll give you a better comprehensive or understanding on who paid the real estate taxes and basically who should be deducting possibly the real estate taxes in those instances in those cases you might have to dive into a little bit more detail just to make sure that you have the reporting properly reported and allocated in those cases you must look at you must look at your real estate tax bill to decide if any non-deductible itemized charges such as those listed earlier are included in the bill if your taxing authority or lender doesn't furnish you a copy of your real estate tax bill ask for it so you're typically going to have a bill with it notice that some of these itemized deductions if they're not going through say your mortgage company you're not going to have the same kind of documentation which is going to say hey this is a tax documentation right all you're going to have is the actual amount that you paid and typically you'll have us a bill that will be fairly straightforward that oftentimes you pay it pays possibly twice a year which is fairly common but it'll depend on the place that you are out at and it'll also depend on when when they're going to be calculating or when those payments are going to be generally made for what time periods they're making the assessment for and when the tax is going to be due that could change from locality to locality and obviously if there's a real estate transfer or transaction sale or purchase then you've got the whole closing documents and who's who's being in charge of the real estate taxes that are owed at that point in time and so on and so forth which again can be a little bit a little bit more confusing you got to dive in and see that in a bit more detail as well so that just means that the real estate taxes in general when someone owns a home when you get into the itemized deductions it's likely that you're going to have some things more and more things for usually more well-off people that are not specifically just driven by data input documents like a w2 form or 1099 okay prepayments of next year's property taxes only taxes paid in 2021 and assessed prior to 2022 can be deducted for 2021 so note here we're talking about a deduction and usually for individual taxes there it's a cashed based system so you actually had to pay the taxes it's not like when they assessed the taxes that would be in a cruel system they assessed it but i didn't pay it they assessed it in 2021 and charged me billed me but i didn't pay it till 2022 that kind of situation when when do i take the deduction usually when you paid it but you can also see a situation what if i prepay my deduction in 2021 if i prepaid it then i should get the deduction and that's they're going to limit that the iris is going to limit that because they're afraid that people will abuse the prepayment kind of situation if they have cashflow and they prepay too much they're going to get the deduction in the current year it's only a timing difference but they'll get the deduction in the current year as opposed to the following year and if you let that kind of thing get out of control that can be a pretty substantial distortion so so that's where you got the limits that are that are going in there again it's usually pretty straightforward but you can imagine someone coming up with a tax planning strategy and say well what if i pay five years of my property taxes you know today and i prepay it i get this big expense today because i want to lower my tax bill at this point in time or something like that so state or local law determines whether and when property taxes assessed which is generally when the taxpayer becomes liable for the property tax imposed refunds and rebates if you received a refund or rebate in 2021 of real estate taxes you paid in 2021 reduce your deduction by the amount of the refund or rebate so we got the same kind of situation we've seen in the past with these tax situations if you've got if you got to rebate the money back and it happened in the same year that you made the payment then then you can just lower the taxes it's going to be a problem when you have the cutoff date what if you got the read what if you paid the taxes in 2021 and then you got the rebate in the following year the money back kind of like a refund after the following year so if you received a refund or rebate in 2021 of real estate taxes you paid in an earlier year don't reduce your your deduction for the amount so now you're saying okay i paid property taxes let's say in 2020 and i took the deduction for it got a benefit and then i got a rebate some of the money back in 2021 what do i do do i need to go back to the prior these are the options that would make sense i go back to the prior year and fix my deduction for the prior year for the amount that i actually got that i didn't get a rebate for no that would be too burdensome to do i can lower my current year deduction by the amount that i got that i got back well you could do that that would be pretty easy but no that's not what they want to do and they want to put it possibly in income just like with this refund on the state side so if you got a benefit from it last time last year and then you got refunded this year then maybe you have to include it in income that's how you fix kind of that timing difference problem so instead you must include the refund or rebate in income on schedule one form 1040 line 8z if you deducted the real estate taxes in the earlier year and the deduction reduced your tax see recoveries in publication 525 that you could find that on the iris website for details on how to figure the amount to include in income state local personal property taxes enter online 5c the state and local personal property taxes you paid but only if the taxes were based on value alone and were imposed on a yearly basis example you paid a yearly fee for the registration of your car so here's the car registration which is a office often a kind of a confusing example because you got like part of it that may be deductible and oftentimes people just basically deduct you know the whole thing but in general this is how this is the example you paid a yearly fee for the registration of your car part of the fee was based on the car's value and part was based on its weight you can deduct only the part of the fee that was based on the car's value and so you got to kind of parse that out a bit so prepayment of next year's property taxes only taxes paid in 2021 and assessed prior to 2022 can't be deducted for 2021 so once again only taxes paid in 2021 and assessed prior prior to 2022 so you can't like say I'm just going to prepay you know five years of I'm just going to pay out a bunch of taxes right and to have this big prepayment that I'm going to try to deduct in the current year and then you know so state and local local law determines whether and when a property tax is assessed which is generally when the taxpayer becomes liable for the property tax imposed other taxes enter only one total online six but list the type and amount of each tax included include on this line income taxes you paid to a foreign country and generation skipping tax the GST imposed on certain income distributions so these are less common kind of other taxes down below you may want to take a credit for the foreign tax instead of a deduction so if you're dealing with someone that has like a foreign income then once again as a tax preparer you're going to be saying do I want to be picking up people that have foreign income do I want to do that or do I want to be specializing on more basic returns do I want to be specializing on returns that are in my area on one state for example or do I want to have multiple states which can add a pretty significant level of complexity depending on you know their activities in multiple states do I want to include business and different entity business related do I want to include people that have income that are out of the country entirely which in that case you have to determine you know is it better for me to be able to take a deduction or possibly a credit in that case so you so if and you might specialize in those cases you might say I specialize in cases where I have I have no people that have foreign income and current income and that might be the area that you that you specialize in but you want to so then you could dive into that more detail don't include taxes you paid to a us possession on this line instead include include us possession taxes on the appropriate state and local tax line don't include federal state tax on income in respect of a decedent on this line instead include it online 16