Escrow Deductions

[webvthokie]

Hello, I bought a home last year and my lender did not include any amounts for Escrow (mortgage insurance or property taxes) on the 1098.  The lender indicates to use the amounts on my closing document which I believe to be inaccurate as it does not indicate what was actually paid during the year since it does not include monthly payments paid to the lender after closing less the amount I was refunded by the lender in my Escrow Adjustment.

So my questions is this, is the proper calculation in this scenario represented by the amounts I paid for mortgage insurance and property taxes respectively:  at closing + sum of monthly escrow payments paid to lender in 2021- refunded amounts by the lender in my Escrow Adjustment?

I believe this calculation accurately captures the net of what I actually paid in 2021 and I have the appropriate documentation to cover this calculation in case of an audit.

Thank you in advance for your response.

[fanfare]

The amount of escrow in your account, now, or earlier,  is not deductible.

Only the tax actually paid in 2021 is deductible, plus your mortgage PMI, if any.

[AamilD · Accepted solution]

Yes, that is the correct calculation. Additionally, make sure the amount of property taxes deduction you paid ties to the amount listed in the escrow statement or escrow transactions. Please be sure to keep your escrow statement for your records as a proof that taxes were paid.

If you paid more than the total bill into escrow – some lenders require an escrow cushion for emergencies – the excess is not deductible. 

Another good resource to tie your property tax amounts is to compare the deduction you are planning to take against the county property tax bill which you would have received since that will also show the exact amount of property tax billed.

[webvthokie]

Thank you for the response. 

The Escrow Analysis Statement very clearly defines what was actually paid compared to what was planned, in addition to the cushion which my lender requires.  So, the actual amount paid on the statement is actually all I need to know...and compare to my 1098.

After reviewing my Escrow Adjustment, the refund I received was because I did not pay any property taxes in 2021 because the Tax Assessment was never completed on my new build.  I suspect that the county missed it because it was a new build and due to COVID complications.  I contacted the auditors office and they assured me that I would not owe any back taxes since they did not conduct the Tax Assessment in 2021.  I will gladly take tax the full amount of property taxes in my wallet compared to the portion that is tax deductible.  Of course, I will keep all of my documentation in case I receive unexpected back taxes from the county after the assessment is completed.

As a first time homeowner, I also confused mortgage insurance (which I don't have) with homeowner's insurance which is not tax deductible ,so all-in-all, my 1098 was correct in stating that I did not have any property tax or mortgage insurance to deduct on my taxes.

Important lesson in reviewing the escrow analysis statement from my lender, which I originally received in November and did not realize the tax implications at the time.