When purchasing Property Tax Liens, sometime a premium bid is paid. How is that handled on a tax return? The lien is redeemed and sometimes the property is acquired.

[Vanessa A]

If the property is acquired, then the buyers premium would be added to the cost basis of the property for when you sell it.  This would not be reflected on your tax return until you sell the house.  It would then decrease your taxable income on the sale of the property.

Are there times you are not getting the property but still paying the premium?

Are you in the business of buying and selling properties?

Was this a one time deal?

[scottanddez]

1. Yes, during the Property Tax Lien Sale a premium bid is paid, and the property is not acquired.  The property owner will pay the property tax during the redemption period.  

2. When properties are acquired, some will be kept, and some will be sold.  So far, no properties have been acquired yet.

3. Property Tax Lien sales are held annually, and we participate every year.

[DianeW777]

Tax lien purchases, including the cost of the premium bid, will be treated like investment sales in TurboTax.  See the details below and please update if you need further assistance.

1. If the property owner has repaid the lien, minus your premium, you would enter this as an investment sale, with a category of other. 
2. Holding period would be the length of time you held the lien.  (long term or short term)
3. The interest, if applicable,  would be claimed as interest income under that section of the program. 
   • You can just say it was reported on a 1099-INT, it doesn't matter.  The interest you pay tax on, whether when the lien is redeemed or you receive it on an annual basis, is added to the cost basis of your lien purchase.  If the premium is not repaid, you could claim it as a selling cost, since it's included in your cost  basis.

You will report that in the same section that you report stock and other investment sales.  To enter:

• Type "Investment sales" in the search window and click Enter
• Click on "Jump to Investment sales"
• On the page with "Did you sell any investments in 2021?"  Answer Yes
• Answer No to "Did you get a 1099-B..."
• On the "Choose the type of investment you sold" Indicate "Other"
• The interview will walk you through entering the details of the sale