21 Mar We built a home. What about taxes?

Q. We paid the builder of our new home a $17,000 penalty for not closing on our house on time. Is the penalty tax deductible? Also, the builder did not pay the township property taxes from the day the Certificate of Occupancy was issued to our closing date. The town now wants us to pay for this even though we did not own the property. They want us to go to small claims court to get reimbursed from the builder. Is this legal?
— Home buyer

A. Congrats on your new home. Seems it’s also brought some new headaches.

For starters, paying a penalty to a builder for a personal residence is not deductible, said Gail Rosen, a certified public accountant based in Martinsville.

“There are limited expenses that are deductible for a personal residence,” she said. “The main ones are mortgage interest and real estate taxes which are deductible based on the limitations for each set by the tax law.”

On the payment of your real estate taxes, this is a little more complicated.

“It appears to me that the real estate taxes should have been settled at closing if the builder was in arrears,” Rosen said. “Based on closings I have seen, any real estate taxes not paid by the seller are subtracted from the closing price.”

She said that’s why the town is probably holding you responsible to pay and then collect from the builder. You should check with the attorney who handled your real estate closing.

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This story was originally published in March 2019.

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