Where do I deduct reassessed business property tax from a property sold in 2020, but paid in 2022?

[SJH57]

I sold a rental property (land) in 2020 (with my brother). In 2022, we received a notice from the county that the value of the property was reassessed at the time of the sale, and the property tax increased by $22k, so we paid it. Is this expense deductible somewhere on my 2022 return without going back and amending the 2020 K1 return? fyi, the partnership which generated a K1 in 2020, was dissolved after the sale of the property. thanks for any help.

[DianeW777]

It depends.  You do not amend your prior year return because the tax was not paid until 2022. Therefore there is nothing to change in 2020.

Likewise the partnership has been dissolved and will not be paying the tax. You would not be allowed to use any portion of the bill that is for penalties, or anything other than the property tax itself such as local improvements.

Since your were the property owner at the time of the assessment and the taxes were paid late because the county or city delayed assessment, you should put the expense on your Schedule E since it is no longer in the partnership.  Each partner would be liable for the payment of tax on the rental property owned in an earlier year. Since the property was business property and not personal use property, itemized deductions would not be allowed for this expense. 

• Schedule A Instructions for State and Local Real Estate Tax
• IRS Publication 527 - Rental expenses are deducted in the year paid.

[SJH57]

Hi Diane,

thank you for the response - You mentioned that the property tax paid goes on a Schedule E on my return, but the link you graciously provided is for Schedule A?

[RobertB4444]

The reason @DianeW777 provided you with a link to the schedule A is to show you why you weren't able to deduct the property tax as an itemized deduction on that schedule.

The Schedule E is accessed through the Income section of TurboTax.  Scroll down to the section for Investment income and go to rental real estate.  You'll have to enter information about the property and then you'll be able to enter the taxes as an expense.  

@SJH57

[SJH57]

oh ok, thank you for clarifying that 🙂 . So, even though I have no income to report , I can claim the expense of the property tax and use it as a write-off?

[SJH57]

Hello Diane and Robert,

Just want to make sure that I'm understanding this.  I was able to find Schedule E in Turbo Tax and enter the property tax information. However, since the income is 0 for 2022, does the property tax need to offset some sort of income? It resulted in a approx +$1000 increase in my refund though. I just don't want to draw any undue attention to my return by the IRS since there is no place to explain why I am claiming the deduction. Thank you both for your assistance.

@DianeW777 
@RobertB4444 

[RobertB4444]

No, this is a fairly normal occurrence.  You closed a business (a rental home is a business no matter how you think of it) and had some expenses after the business was closed.  Not a big deal.  If you had known about the taxes you would have paid them in the year where you had some income.  All good.

@SJH57