Child paying mother’s real estate taxes wishes to deduct them on federal return now that mom has passed
Q: I lived with my mother, in her home, for 44 years. I have helped her with her home expenses since my college days and took care of her through her battle with Alzheimer’s. I even paid her property taxes, homeowners insurance and utilities for many years. In fact, all the utility bills are in my name.
She passed away two years ago. She wanted me to remain living in the home for as long as I wished, because I was the only person who took responsibility for her care.
I have several siblings. All of them have their own homes and have no desire to remove me from the home. The property is debt free. If I were to decide to move from the home, then any sale proceeds would be divided between us all, but until then, it’s been agreed that I can remain, as long as I continue to pay the taxes and normal expenses of living there.
My mom may have had a will, but we have yet to find it. She was a hoarder, and no one really knows where she might have stashed it. Can I deduct the real estate taxes on my federal income taxes even if the tax bill is in her name?
A: You pose an interesting question. On the one hand, you’ve treated your mom’s home as your own for most of your life. Yet, the home was owned by your mother. Generally, for income tax purposes, the person that owns the home has the right to deduct the real estate taxes. In your case, it would seem that while your mother was alive, you could not deduct those taxes.
Here’s the interesting part: It doesn’t matter who receives the tax bills for the home or whether the tax bills are in the name of one person or another. When it comes to filing a federal income tax return, the person that owns the home gets to deduct the real estate taxes that were paid for the home.
Once your mother passed, and in the absence of a valid will stating different wishes, it would seem that you and your siblings inherited the home and may now own it in equal shares. It would stand to reason that you could deduct your payments to the local authorities for real estate taxes on your federal income tax return.
But, before you take that deduction, you’ll need to determine whether you should take it. Depending on how much money you make, the standard deduction on individual federal income taxes for 2021 is $12,550 according to the Internal Revenue Service website.
Before you could benefit from deducting your real estate tax payments, you’d need to figure out if you have deductions for state, local and property taxes that would be greater than $10,000 and any other deductions that would take you over the $12,550 threshold. (You are limited to a grand total of $10,000 in deductions for state, local and property taxes in any case.
You’ll have to see if your deductible expenses are high enough to reach those thresholds. If they are, you’ll be able to deduct your real estate tax payments. If not, you’ll get the benefit of the standard deduction. If your returns are more complicated, you’ll need to talk to a tax professional about your situation and how the property tax payments you make affect that.
You do need to have a conversation with your siblings about the property, and get a written agreement in place that outlines your understanding of the property: who owns it, how you get the continued use of the property if you pay the real estate taxes, utilities and insurance, and who covers the ongoing maintenance that’s needed (major and minor repairs).
And things will happen. Let’s say the roof needs replacement. You should have some agreement as to the sharing of major expenses, assuming everyone owns the property collectively. If you’re going to front that cash, then you’ll want to have something in writing that says you’ll be reimbursed for those expenses out of the sale proceeds before the net profit is divided equally. Likewise, if you owe money for expenses that should have been shared, but one or both of your siblings picked up that expense, then they’ll recover their out of pocket expenses, too.
It’s hard for siblings or heirs to draft up this sort of agreement without professional help. Consider talking to an attorney to help you document your agreement with your siblings. If you can’t get your siblings on board for a little legal help, write a letter to yourselves (that everyone can sign), as memories can be short and receipts go missing.
Finally, if one of your siblings dies, you don’t want to get into a battle with that sibling’s executor or representative of their estate. Which could easily happen if there’s nothing in writing that has everyone’s signatures.