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Old 11-02-2008, 12:43 PM
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Smile Real estate property tax question

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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Old 11-04-2008, 09:36 AM
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I think the best approach would be for you to accept this payment as rental income. You could then use these funds to pay for the property taxes. The net impact would be zero!

But, you would effectively have rental income and claim deductible expenses to offset that rental income in the form of property taxes. Of course, there could also be other allowable expenses in connection with your property.

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