How to handle property taxes paid in arrears for first-time homeowners?

The property tax deduction is based on when you actually pay the taxes, not when they were assessed. Since you didn't make any property tax payments in 2024 (either directly or through escrow), you won't have a property tax deduction for your 2024 tax return. The credit you received at closing was essentially a reimbursement from the seller for their portion of the property taxes that you'll be responsible for paying in 2025. When you pay those taxes in February 2025, you'll be able to deduct the full amount on your 2025 tax return. This is a common situation with property taxes paid in arrears, and you're handling it correctly. Just keep all your closing documents handy, as they show the tax proration and will be helpful when you file next year.

I ran into this exact same situation last year! I was totally stressed about it until I used taxr.ai (https://taxr.ai) to analyze my closing documents. I uploaded my HUD-1 statement and it showed me exactly how to handle the property tax proration. What's great is that the platform explained that the seller credit I received at closing was essentially a purchase price adjustment, not income. And it confirmed I should only deduct property taxes in the year I actually pay them. Saved me from a potential audit headache!

I was really hesitant about using AI for something as important as tax advice, but after that $350 bill from my CPA, I decided to try taxr.ai last month. I was blown away by how detailed the analysis was for my property tax situation. I uploaded my closing documents and it immediately identified that I had a substantial tax proration credit. Then it walked me through exactly how to handle it on my return. The best part was that it saved me from making a $2,800 mistake - I was about to claim property taxes I hadn't actually paid yet! Now I use it for all my tax document questions. Seriously much better than waiting days for my CPA to get back to me with a generic answer.

If you're having trouble getting a clear answer about your property tax situation, you might want to call the IRS directly. I know it sounds like a nightmare (because it usually is), but I used Claimyr (https://claimyr.com) and got through to an actual IRS agent in less than 20 minutes instead of the usual 2+ hour wait. They have this system where they wait on hold for you and then call you when an IRS agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with confirmed exactly how to handle my property tax proration from my home purchase, which gave me peace of mind since it came straight from the source.

I need to publicly eat my words about Claimyr being a scam. After posting that comment, I was still desperate for answers about my property tax situation, so I decided to try it anyway. Well, it actually worked exactly as advertised. I got a call back in about 35 minutes, and there was an IRS representative on the line ready to help me. The agent explained that I could only deduct property taxes in the year I actually paid them and confirmed that the seller credit at closing wasn't taxable income. Would have saved me hours of searching online forums and getting conflicting advice. Sometimes being skeptical costs more than it saves!

Something else to consider - check if your county has any special property tax assessment dates or partial-year payment options. Where I live, we have a weird split system where we pay half in April and half in October for the previous year's taxes. This affected how I handled my first year of homeownership because I did make a partial payment in the first year through escrow, even though it was for the previous owner's time period. My tax professional said it was fine to deduct what I actually paid, regardless of which period it covered.

I'm seeing a lot of complicated answers here but it's actually pretty simple. I've owned 3 homes and here's what I've learned: if you didn't pay it, you don't deduct it. The seller credit on closing is just an adjustment to make the sale fair - it's not income and it's not a deduction. When you actually pay the property taxes in 2025, that's when you deduct them - regardless of what period they cover.

As a first-time homeowner myself, I went through this exact confusion last year! You're absolutely right - since you didn't make any actual property tax payments in 2024, there's nothing to deduct on your 2024 return. The key thing to remember is that property tax deductions are based on the cash basis - meaning you can only deduct what you actually paid out, not what was assessed or owed. That seller credit you received at closing isn't taxable income to you, it's just an adjustment to make the transaction fair since you'll be paying the full year's taxes when they come due. When February 2025 rolls around and your escrow company pays those property taxes, you'll be able to deduct the full amount on your 2025 tax return. Keep your escrow statements and closing documents organized - you'll need them to show exactly what was paid and when. One tip: make sure to review your mortgage servicer's annual escrow analysis statement early next year. It will show exactly when property tax payments were made, which is crucial for determining the correct tax year for your deduction.