Beware of these real estate tax pitfalls that can prove to be very expensive.
School Districts That Can’t Balance Their Budgets
School district taxes make up a big part of your annual property taxes. Despite reports showing that NY schools has amassed piles of money for reserves, they seem to keep on raising budgets and taxes. Wynadach now says it is short $300,000 for a sports program.
We all want good education. Yet, if the school system can’t catch up with new ways to optimize spending and operate leaner and more efficiently, property taxes will keep going up, while the standard of education slides.
This comes right on the heels of some of the largest tax bill hikes Long Islanders have seen in a very long time.
Annual Property Tax Payments
When you buy or refinance property the closing agent typically collects money to pay your next property tax bill. Your mortgage company may also be collecting money from you every month with your payment to pay the property tax bill.
Don’t just assume those bills are paid on time.
Make sure you are verifying those payments. Otherwise your property could be hit with a lien and even be sold at auction. You’ll be out of pocket for the money you already paid for them, and have to come up with it again in a very short period of time.
Income Tax On Property Transfers
There can be similar glitches when the documents filed when buying and selling property are not completed correctly. For example, if you manage to sell a home in this market, and the closing company doesn’t show $1M of your proceeds actually went to pay off a mortgage, the IRS is going to think you made an extra $1M this year. They are going to send you a big tax bill for that. If the closing agent goes out of business before you catch it, you may not be able to prove the IRS is wrong. Always check the numbers are right before you sign anything.
It’s also important to watch out for new and higher real estate transfer taxes, including the new ‘Mansion Tax’ when selling a home in NY.
IRS Tax Liens
If you fail to keep up with your federal income taxes the IRS can place a lien against your real estate. This is true even if they are operating on incorrect information. Based on the examples above, those liens could even exceed the value of your home or business property. Then you can’t even sell. There may be ways to remove these liens, but it can take time and money. Better to avoid them by working with the IRS in advance.