For years home owners have benefited from
property tax write-offs. Proposed new laws may
change the way you keep records and cost you more
money in taxes.
Homeowner
Property Tax Write-Offs Changes Might Cost You
More Money
by
Jeanette Joy Fisher
If
you've been writing off your property taxes on
your federal income tax form every year, you may
need to be more careful with your figures if the
recommendations of a report are accepted and
adopted into legislation by Congress. A
congressional committee recently suggested that
many homeowners have been deducting more property
tax than they should from their taxes, which,
according to the report, has been costing the
government hundreds of millions of dollars every
year.
The
report was generated by the nonpartisan Joint
Committee on Taxation (JCT), and proposes a way
for the government to plug loopholes in the tax
system. If the report's recommendations are
adopted, Congress may soon put greater limitations
on the amount of property tax homeowners have
legally been able to deduct at tax time.
However,
the difficulty hasn't been the fault of individual
taxpayers. It has to do with how most local
governments report their property taxes to their
citizens. The report encourages Congress to
require local governments or mortgage lenders to
report to the IRS the exact itemized details of
property tax payments paid by homeowners each
year. The committee suggests that incorrect
property tax deductions cost the federal
government some $20 billion a year. Back in 1993,
a federal study revealed that nearly $400 million
of that year's property tax write-off figures were
too high, and the JCT report estimates that
today's figures could easily be twice that much.
Under
the tax code as it currently exists, homeowners
can legally write off local and state property
taxes that have been assessed based on their local
property valuations. However, other special levies
and user fees, such as those that are designed to
benefit individual households or particular
neighborhoods, and not the entire community,
aren't deductible. The problem occurs when sewers,
sidewalks, and other special improvement projects
are funded by tax levies on property owners who
will be directly affected. When local governments
send out tax bills each year, they don't generally
send an exact breakdown to the federal government
of how the money was allocated.
If such
a property tax breakdown was provided to the IRS,
the government would be in a better position to
audit each homeowner's tax form to make certain
they're only claiming that part of their property
tax that benefited their entire community. Since
lenders already are required to provide mortgage
rate figures to the IRS, the committee contends
that it wouldn't be that much more difficult to
also report itemized figures for annual property
taxes.
Make no
mistake. This report isn't just idle talk. The JCT
is a highly influential group of legislators that
carries considerable clout on Capital Hill. That
means their report will be given a serious look by
fellow legislators, and that their recommendations
are likely to make their way into a tax bill in
the near future. Once that bill has been debated,
don't be surprised if it's voted into law and
becomes a part of the tax code as early the
following tax season.
###
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you need a fancy home to be happy? Maybe a
less expensive home, which would cost you less in
taxes, could bring piece of mind. Explore the
Residential Design Guide and find out what
type of home could be your "dream home."
Copyright © 2006 Jeanette J. Fisher
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