Prorata taxes

[rbt1219]

I bought a rental property on 6/1/21 in Colorado, a state in which property taxes are paid in arrears. At closing, the seller credited me $800 for 2021 taxes (1/1/21-5/31/21) that I'll pay in 2022. I paid no other taxes on the rental in 2021. What becomes of the $800?

[JamesG1]

You may report the $800 as an expense against rental property income.

This IRS FAQ states:

You can deduct the ordinary and necessary expenses for managing, conserving and maintaining your rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.

[rbt1219]

How can a credit on a settlement statement be considered an expense? Because it decreased the amount due at closing, I've concluded to reduce the property basis by $800.

[MinhT1]

You should not reduce your cost basis by the $800 you received in property tax credit.

If you paid no property tax in 2021, you should use it to reduce your 2022 property tax expense.