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Returning Member

Are back taxes on a property deductible?

Hi, I owe back taxes on a property in California. As a result, the property is in "tax-defaulted" status, giving the county in which it's located the ability to sell if the back taxes aren't paid (see link below).

https://www.nolo.com/legal-encyclopedia/what-happens-if-i-dont-pay-prop[product key removed]ornia.ht... 

 

My question is: If I go ahead and pay the back taxes to "redeem" the property, can the payment still be deducted on my tax return? Would this include penalties, fees, etc?

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Level 6

Are back taxes on a property deductible?

Just to clarify for any future readers:

 

They are deductible because YOU were the one that were originally owed the taxes. 

 

But a common scenario involves somebody buying a property that somebody else did not pay their taxes.  In that scenario, they would NOT be deductible because YOU weren't assessed those taxes.  Instead, paying off those taxes would essentially increase your purchase price (Basis).

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Employee Tax & Finance Expert

Are back taxes on a property deductible?

Yes, back property taxes are deductible in the year you actually paid them. However, penalties and interest are not deductible.

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Highlighted
Level 6

Are back taxes on a property deductible?

Just to clarify for any future readers:

 

They are deductible because YOU were the one that were originally owed the taxes. 

 

But a common scenario involves somebody buying a property that somebody else did not pay their taxes.  In that scenario, they would NOT be deductible because YOU weren't assessed those taxes.  Instead, paying off those taxes would essentially increase your purchase price (Basis).

View solution in original post

Highlighted
Level 15

Are back taxes on a property deductible?

You must have been the owner when the taxes were assessed.  Then, any property taxes you pay are deductible as of the date paid, regardless of what year they were incurred.  However, there is still a $10,000 cap on all state and local taxes as itemized deductions.

 

If you bought the property and must pay back taxes to clear the title, that is treated for tax purposes as an increase in the purchase price, and may reduce your capital gains in the future, but is not deductible. 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
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