Can I claim second home tax ?

[krslnguyen]

Good morning. I have a question in related to second home tax. My husband and I live in Washington state and we own a house there.  Last year September 2015, my brother added my name into the deed of his house in Oregon for estate planning purposes.  The house is all pay off and we only have to pay property tax. The property tax is listed under my brother name and I, but last year I didnt paid the property taxes but it was being paid by my brother . The house were originally a rental house and since September 2015 , it become a residence house for my brother and my parent. This tax year, 2016, he's not claiming the house on his taxes but he would like me to claims it forward as he only lives at the home 10% of the time, however the house is occupied by my parent which is considered as personal use and not rental property.  My question is that can I claim the house tax property as second home since he will not be claiming from now on, or he will have to claim it on his taxes for this year since he paid for it out of his own funds? Then this year onward , I'll pay the taxes with my own funds?  Thank you so much, Rose

[GeoffreyG]

Hello Rose:

The answer to your question hinges not so much on physical occupancy of the house (that is, who lives there), or the payment of household bills, but rather it depends on legal ownership.

As such, you will want to know these rules:

When a property is jointly owned by more than one individual, the IRS tells us the following:

• For unmarried couples and unrelated individuals, each taxpayer can only claim the portion of any expenses, such as mortgage interest or real estate taxes, that they actually paid
• For a married couple filing separate returns, they can chose to allocate real estate taxes and mortgage interest expenses between themselves, in any manner they choose.

So, in your case, because you and your brother are the legal owners, the tax benefits (deductions) for property taxes and mortgage belong to whomever paid the actual invoices for them.

In addition, there is another important tax item that we must bring up in this answer -- and one that is often overlooked by many taxpayers.  That "item" is the subject of gift taxes, and the legally necessity of filing a gift tax return (IRS Form 709) whenever someone is added onto the deed (i.e. ownership) of real estate property.

If you used a lawyer for your estate planning efforts, then this matter may have already been properly taken care of.  If not, then you will want to read the following AnswerXchange posts, for additional details and guidelines about gift taxes and Form 709.

https://ttlc.intuit.com/questions/3878767

https://ttlc.intuit.com/questions/3930641


Oregon has no gift tax system (but does have a state-level estate tax that is effective at a much lower wealth level than the federal estate tax).  The same is true of Washington state.  Thus, federal Form 709 has no Oregon or Washington equivalent that would need to be filed.

Thank you for asking this important question.

[krslnguyen]

Hello Geoffrey,

Thank you so much for your answer.  I really appreciated yiu taking tour time in he long this matter.

To answer your questions,  we didn't use the lawyer for our estate planning. My brother added my name into the deed after he paid off the motgage, and I remembered we put down on the deed as $0 for the amount that cost me.

With what you said above about gift taxes and form 709 in Oregon and Washington.  What is the step we need to do next?

And from now on ward, I would need to pay for the actual invoices in order for me to claim property taxes?


Thank you,

Rose

[GeoffreyG]

Hello again, Rose:

With respect to the Form 709 gift tax issue, I would recommend that you telephone (or visit in person) a local accounting firm, or tax preparation company, and explain to them that you need their help filing just one single Form 709 (it's a one-off issue, and you won't need to file that form again in future years, unless you undertake a similar transaction with the property deed).

Most any competent tax and accounting office should be able to help you with this for a small fee.  Mention Form 709 (federal gift tax disclosure) and they'll know what you mean.  You might want to negotiate before agreeing on a price, and you can also shop around for a competing price.  But, you should be able to get this done at a reasonable cost, especially after the main tax filing season concludes in April.

As to your other follow-up question, the answer to that is yes.  If you want to deduct the home's property taxes going forward, then you should be the one to write the annual payment check to the county assessor's office.

Thanks again, and be well.

[krslnguyen]

Geoffrey,

I'm sorry just one more question. Now, do both of us, my brother and I have to fill out the federal 709 form or can either him or I can fill it out and would suffice the requirement ?

Thanks so much again,

Rose

[GeoffreyG]

Hi Rose:

Only your brother needs to file the Form 709 (since he was the one who "made" the gift of home equity).  A gift recipient never has to file Form 709.  My prior answers were addressed to you both, considering you together as family.  I should have been more precise.

Thank you.

[krslnguyen]

Geoffrey,

If my brother can't amend his tax return since it's already filed and paid for, would there be a problem if he didn't claim the property tax on his return?

Thank you,

Rose

[GeoffreyG]

If your brother doesn't want to amend his tax return, to claim a property tax deduction (for a tax that he paid), then he doesn't have to do so.  There is no tax law that necessarily compels a taxpayer to take a (valid) deduction if they don't want to . . . or if they did not do so with their original tax return, and then later are faced with the prospect of amending.  In that case, the property tax deduction would go "unclaimed" by anyone, but just for this specific year.