How should I prorate property tax with a fiscal year different from the tax year on a new rental?

[jbower]

I just started renting out part of my property last year (2023), and while I'm letting Turbotax calculate splits due to the rental only covering part of the year (that computation looks correct), I'm wondering if I need to further pro-rate the property tax.

There are two reasons I'm not sure:

1. My city property tax bills run from July 2022-> July 2023. So, should I expense the actual payments I made in 2023, or pro-rate the total bill for 2022 -> 2023 to the days it runs through in 2023?

2. My home was purchased in 2022 and it took a while for the city to reassess the value for taxation. This meant in 2023 I received and paid extra tax bills to retrospectively cover 2022. Can I include these as a rental property expense for 2023?

[DianeW777 · Accepted solution]

Yes, the date property tax is paid is when you can deduct it as an expense. You do not need to prorate.

Answer to question 1: If the property tax was paid after the property became available for rent, then you should include it.  For tax purposes, it is always when it was paid and not the assessment period of the city on the tax bill.

Answer to question 2: Any tax bill paid in 2023 is an eligible expense deduction in 2023 as long as these taxes were not paid for arrears when the property was purchased.  Based on your statement about a current reassessment, then it is deductible.

[jbower]

Thank you for the detailed reply.

When you say:

If the property tax was paid after the property became available for rent, then you should include it.

Does that need to be precise to the tax year or to the very day?

If the tax was paid say just before the last contractor doing renovation work on the unit left in 2023 (making the unit "officially" available for rent) does that count?

[PatriciaV]

According to IRS Pub 527 - Vacant Property, if you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant.

This would include property taxes, which are necessary to maintain ownership of the property.

@jbower