"Andy" <andysharpe[at]juno.com> wrote:

- quote -

No, only the amount of real estate taxes would be a real
estate taxes deduction.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Phil, I didn't look at the tax tables before giving a
specific number 0f 20% for my marginal rate........my
fault....

However, if I itemize deductions, and have a 50K R E
property tax bill, I can take 50K out of my IRA, which would
normally be in some bracket (say 28% or whatever), and it
will be a wash....since I would declare it as income on one
line and a tax deduction on another.

If I don't itemize and pay the RE tax year by year, I get
a 10K standard deduction and the real estate tax has no
deduction associated with it, year by year, since it will be
less than 10 K..... And if I take money out of my IRA each
year to pay it, I have to pay income tax on the IRA
withdrawal, with no itemized deduction to offset it....

By waiting until the tax bill is big enough to make a
significant itemization, I have withdrawn from an IRA (as
per IRS requirement), and ended up not paying any income tax
on it.....

By doing an EXEL spread sheet year by year and comparing the
accumulated tax bill (at 8%) with the accumulation in a bank
account (at 5%), and then using my marginal tax rate each
year to see what is left over if I pay the tax off in each
particular year from my IRA, I can see where the break
even point is......

The key factor is that IRA funds MUST be withdrawn at a
certain point and tax paid at my marginal rate ( I used 20%,
..... it could be 28%...or whatever) . If the IRA withdrawal
is used only to pay a deductible expense, at some point the
plan makes sense....

And I have, in the interim, a nice, separate stash of cash
that I could use for emergencies......

Anyway, that is my reasoning........

True, the inability to deduct the interest paid to the /RE
tax office while I am required to pay tax on the 5% interest
earned each year by the separate bank account makes it less
attractive.... I will fold that into my spreadsheet and see
what happens.....

Thanks to all for the advice, especially to you, Phil , for
taking the trouble to question me further.....I really
appreciate it..

Andy

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Andy wrote:

- quote -

Well, maybe a couple. You're on the right track inyour
analysis I think. Since Texas has no state income tax, only
the federal applies. You mention you'll be in the 20%
marginal bracket. Might you mean 15% instead? If so, I can
guess you're now in the 25% bracket OR higher.

Also, The 5% interest you might be making on the money in
lieu of paying property taxes, depending on the type of
investment, might also be taxable NOW at your higher rate.
If that is 25%, then your 5 percent shrinks to 3.75% after
tax. Now, compare that with the non deductible 8%.

ChEAr$,
Harlan Lunsford, EA n LA

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"Andy" <andysharpe[at]juno.com> wrote:

- quote -

It doesn't make sense to me, but I don't have all your
numbers. Neither do you, since there is no 20% bracket.
That said, I can't, off the top of my head, figure out how
you make money by earning 5% on money that's costing you 8%.

When you're working real numbers, don't forget the effect of
"losing" the standard deduction in the years you itemize.

--
Phil Marti
Clarksburg, MD

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My thanks to all those who replied. The consistency of the
answers from all of you gives me confidence.

The lien is against the house by the local property taxing
authority. In Texas, One has the option of deferring taxes
until death (if over 65 years old) without penalty, but
with an 8% interest rate.

Since I have no deductions to itemize, my plan is to defer
the real estate taxes until a substantial amount is built
up, and then use money from my IRA to pay it off. It will
then be a wash for the IRA (since I can then itemize), and
will actually pretty much cancel out the interest
accumulated on the tax since the money will be invested at,
say 5%, and I will be in around the 20% marginal tax
bracket.......

Any comments on this strategy ? Thanks again.

Andy

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"Andy" <andysharpe[at]juno.com> wrote:

- quote -

Not unless the underlying taxes were real estate taxes in
the first place. Additionally, penalties and interest
thereon are not deductible.

Gary W. Lundgren, EA
Proactive Taxpayer Advocates
Former MN Revenue Officer
www.Taxpayer-Help.com

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No.

Missy Doyle

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"Andy" <andysharpe[at]juno.com> wrote

- quote -

If the "tax lien" is for unpaid property taxes, then yes,
the amount paid (less the penalties and interest) can be
taken on Schedule A as an itemized deduction.

If the lien is for unpaid income taxes, or some other type
of taxes, then no.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

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"Andy" <andysharpe[at]juno.com> wrote:

- quote -

What kind of taxes are we talking about? If it's for unpaid
real estate taxes, they become deductible (not the interest
and penalties) when you pay them. If it's a lien for income
taxes, they're no more deductible because of the lien than
they would have been without it.

--
Phil Marti
Clarksburg, MD

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Andy wrote:

- quote -

Tell us first, please, what is the character of those 4
years worth of taxes for which a lien is on your house?
Income tax? property tax?

If the latter, you may indeed deduct that portion of what
you pay that is for the four years of taxes, but not
interest nor penalties.

If for income taxes, then no, you can't reclassify that as
property taxes.

ChEAr$,
Harlan Lunsford, EA n LA

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"Andy" <andysharpe[at]juno.com> wrote:

- quote -

This could not legally be deducted as an itemized deduction
unless it is actually real estate taxes instead of income
taxes. At the same time, no penalties could be deducted
regardless of the amount or for what they were charged to
you.

Wayne Brasch

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I have a tax lien on my house for 4 years of back taxes with
interest and some penalties.

If I pay it off completely, is the total amount that I pay
eligible to use as "real estate taxes" for an itemized
deduction?

Thanks

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