Trap #1: Line 6 - Real estate taxes
Your monthly mortgage payment often includes money that goes into your escrow account, from which the lender pays your local real estate taxes.
Your lender keeps up to a two-month payment cushion, so the money you sent the bank last year may be more than what the bank pays for your property taxes, says Julian Block, a tax attorney and author of “Julian Block’s Home Seller’s Guide to Tax Savings.”
The lender sends you a 1099 showing how much it paid for your property taxes. Use that number to avoid 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.