Trap #1: Line 6 - real estate taxes
Your monthly mortgage payment often includes money for a tax escrow, from which the lender pays your local real estate taxes.
The money you send the bank may be more than what the bank pays for your taxes, says Julian Block, a tax attorney and author of Julian Block’s Home Seller’s Guide to Tax Savings. That will lead you to putting the wrong number on Schedule A.
- Your monthly payment to the lender: $2,000 for mortgage + $500 escrow for taxes
- Your annual property tax bill: $5,500
Now do the math:
- Your bank received $6,000 for real estate taxes, but only paid $5,500. It may keep the extra $500 to apply to the next tax bill or refund it to you at some point, but meanwhile, you’re making a mistake if you enter $6,000 on Schedule A.
- Instead, take the number from Form 1098—which your bank sends you each year—that shows the actual taxes paid.