In addition to the mortgage interest and property tax reported on the 1098, can you deduct the mortgage interest and property taxes that were prepaid as part of closing costs?
Additionally, on my 1098 the total 2017 escrow beginning balance was around $3K and the total property tax disbursements was around $1K. Should I deduct the entire $3K as this is money I paid into my escrow account for property taxes or should I report the actual amount my lender dispersed to my township?
Thanks in advance for the help!
You can deduct the actual amount that remitted to the taxing authority. Amounts held in escrow are not deductible until paid. If you paid taxes to the seller at closing, then those amounts are deductible.
Thanks for the quick reply Paula.
To clarify -
On my 1098, my mortgage interest was around $6K. Property taxes disbursed were around $1K. On my closing statement, prepaid interest was around $800 and prepaid property taxes were around $2K.
The total $9K would be deductible, correct?
Additionally, are you allowed to deduct any property tax adjustments for items paid by the seller? Looks like they were added to my closing costs.
For both property taxes and interest, the deductible amount is what you actually paid. These amounts can be from the 1098 form that the lender remitted on your behalf and what was paid on your settlement papers.
If the prepaid interest was for interim interest until the settlement date, then it is deductible. If the prepaid interest was part of escrow accounts (lenders are required to keep a % in reserve), then it is not deductible. Add any deductible amounts to your 1098 box 1 entry.
For the taxes, you can deduct your share of the taxes for the time you owned the property until the end of the year. If the $2k in property taxes were remitted to the taxing authority, then add the amounts to figure on your 1098.
See IRS pub 530 for an explanation of how the property tax deduction works.