tax impact of escrow/RE tax mixup

[chiver78]

my property taxes are paid quarterly by my mortgage company (GMAC) through escrow. last summer, they figured out there had been a paperwork error (not their fault or mine) that meant I had only actually been paying half of my taxes for the prior two years. the other half had been getting paid by another party, and I was getting a surplus check for the extra thinking all was well and good. in order to fix the paperwork error, they reimbursed that other party what had been paid on my behalf in one chunk and I am now looking at a very large shortage for 2012.

my question is, does this impact my tax filings for 2012 and prior years? I am in the process of digging out my old returns, but I believe my end-of-year statements from GMAC shows the taxes I was charged from the city and not necessarily what was actually paid by them. also, would the fact that a very large lump sum went out in 2012 impact my filing in the next few weeks?

oh, and is there anything else I haven't thought of? thanks!

[Deleted]

Did you itemize your deductions in previous years? Do you plan to do so this year?

[chiver78]

yes and yes. I guess I'm concerned that what had been reported in previous years might be inaccurate, and that I might have to file amended returns for those years.

[Deleted]

IMHO,

This would not affect your taxes. The deduction is allowed to be taken when paid to the town and they were being paid in previous years. You would get to deduct what was paid to the town during 2012 on your 2012 taxes.

[chiver78]

even though I wasn't the one making the payments in prior years? interesting. so then that means I shouldn't add the lump sum that was the reimbursement that hit in 2012, if it was already accounted for in prior years?

[mwcpa]

if you or your escrow agent paid your real estate taxes you are entitled to a tax deduciton for real estate taxes paid.

if for what ever reason the taxes were overpaid and the local refunds the money that is a "tax refund" subject to income tax in th year received.

if your excess escrow is returned that is the same as moving cash from checking account A to checking account B, the deduciton for real estate tax is not based on the escrow taken in your mortgage payment, if you were using the amount escroewed as the tax payements then you need to review and may want to consider correcting any over/understatements.

[Jake 48]

At least you got to the bottom of what was wrong,

[chiver78]

thanks, Jake. there's actually still a couple questions when I tried to match up the ledgers from GMAC and the city, but nothing special that would change my question here. it could mean another $700 that I owe back to GMAC at some point though, so I do need to clear that up.

mwcpa, thanks. I'd been reporting my taxes paid from whatever the number was on the 1099(?) that I got from GMAC. I'll know when I pull the old returns and see the numbers whether those forms were accurate or not. what I can say for absolute sure is that the taxes were never overpaid in the eyes of the city, in that when the duplicate payments went in one quarter, the next quarter the city would report no taxes due to GMAC so none was paid. the "surplus" from the incorrect estimated tax payments was then refunded at the end of each year. seeing a surplus, I messed up and didn't review the ledger until the massive shortage this year from the reimbursement. sorry if that doesn't all make sense, I'm trying not to get into all the details as to what happened. I'll certainly answer questions if needed for clarity, I had a thread over in YM about all the confusion as it happened.

so if the taxes were never overpaid, there was no refund - just technically an escrow surplus check to me. but then for 2012, I have a $3100 disbursement from my escrow in order to reimburse that other party for the taxes they had paid on my behalf. I need to know how that all has to be calculated. thanks!

[TheOtherMe]

What a mess. Hope you get this all straightened out.

[chiver78]

an update on this question, today was the appointment with the accountant.

in the prior years' returns, we noticed that the tax reported was the taxes that GMAC had paid to my city, and only that amount. ~$1200 for both years. so, I wasn't actually taking the deduction in years past. following that logic, I paid past taxes in line with 2012's numbers and so I'll be taking the deduction for the full amount I paid back to cover the shortage. if I'd taken the deduction in 2010/11 in error, we'd have left well enough alone.

basically, it means that I am getting a refund for about $4000. I knew I needed to readjust my withholdings after no longer having ESPP/options with the company sale, but I figured I'd wait to see what impact that change had. taking both into account, in one fell swoop I can put back all of what I took out of savings to cover this shortage as well as a major car repair last fall. woo hoo!

[TheOtherMe]

Glad you have the answer and can pay off the car repair as well as reimburse your savings account!