My principle residence is in Michigan. I am living at the property, however, the property is titled in the Estate Name of my parents who died in 2006. I paid the property taxes and claimed the taxes paid on my Federal return. I also claimed the Michigan Principle Residence exemption. Last year I had an $87 refund from the State. This year I expect to get back over $1800 (I overpaid). I filed as a part-year resident as I moved from Illinois to Michigan 2/1/07. Michigan is requesting "documentation" of property taxes paid. Can I claim the property tax I paid on behalf of the Estate, even though the property is still titled in the Estate name?

I think you need to consult a tax professional here. From my understanding (and we have some very good tax gurus who will correct me if I'm wrong), the estate is a legal entity and needs to file its own return. Since you do not own the property, the estate still does, it's the estate that gets the tax deduction.

Are you the executor of the estate? Why haven't you settled the estate already?

Thanks for the help. If you have time to read all this, here's my prediciment:

My sister is PR for my parents estate. I paid the property taxes because the estate is broke.

My father died in 2003. We assumed all property transferred to my mother as it was titled in both their names. When my mother died in 2006, we founf some propertty was only titled in my father's name. We had to open an Estate for him in order to transfer this property to my mother's estate. We are getting ready to close dad's estate now.

To complicate matters: My mother had a sister who died 17 days before she did. Her husband died the same day my dad died. I am PR for this estate. My mother is the only hier left to her sisters estate. My aunt had no children and no other living relatives. This estate has property we are trying to sell, but given the market, it has not moved in over a year.

So we cannot close my mother's estate until my aunt's estate closes and the property must sell before that happens. My aunt's estate has to roll into my mother's estate.

To further complicate matters: Before my mother died, she started a law suit with the neighbors over the property boundaries and an ancient easement that had existed for a, now defunct, county roadway. We won the lawsuit, which changed the legal description of the property.

AND, since this property has been in my family since the 1920's, when my grandmother bought it, prior to the existence of Title Insurance, and my grandmother quit-claimed it to my father in the 1990's. I have just now, gotten a title insurance policy issued for the property.

AND, after my parents died, while all three estates were open, another law suit was filed and the Estate was named as a defendant. My parents owned contiguous lots, two of which were in another subdivision. A property owner in this subdivision filed suit against all the other subdivision land owners (102 lots and 62 defendants) over (guess what?) a land dispute and an easement over a former roadway now abandoned by the County (sound familiar?)

We sided with the plaintiff even though we were defendants (interpleading defendants) and technically we won and lost. We gained additional property rights to a common lake lot in the subdivision, however we disagree with the Court and state that such rights should not have been granted. While this case has been adjudicated at the County Circuit Court level, I expect the plaintiff will file an appeal (as the Circuit Court made grevious errors.

So all the estates are still open and we cannot yet close them. They are costing me a small fortune.

Ahh I see. The good news is that any funds you contribute to the estate for maintenance of the property within the estate are reimbursable expenses. So, when the prpoerties are sold and the estate is distributed what you have paid comes off the top.

But that still doesn't give you the right to deduct property taxes for property you don't own yet.

Sounds like the estate has an attorney representing it, have you discussed this with them?

There's a catch-22 everywhere. True, my I can recover any expenses from my Aunt's estate when that property sells, but my sister and I want to keep my mother's property. So there will not be a sale. I'm living there now. Technically, I loaned the estate the money to pay the property taxes, and my sister and I are the heris to the estate, and are technically the owners, but I will never get that money back from the estate because there will be no way to generate that money.

Can I claim the money I loaned to the estate that I will not recover?

First, if I understood you, there are several pieces of property in the estate other than the ancestral home. Sale of those properties will generate income that can be used to reimburse you. Both Technically and legally you DID loan the estate the money used to pay the taxes. The loan was to the estate as an entity (and you should have paperwork in which the estate acknowledges the loan). But the loan was to the estate as a whole, not just to the house.

However, since you did loan the money to the estate, you might be able to claim this as a loss, if the estate does not pay it back. But you are getting into some very complex issues here that I'm not competent to definitively advise on. I really think you need to discuss them with a tax professional. Hopefully one of our tax gurus will be along shortly.

Thanks again for the help. This issue is taxing (pun intended) my attorney's knowldege and I'm going to have to get a tax attorney involved.

Yes, my family home had set on one of seven indvidual lots that were owned, but the lots have all been combined, by Court Order, into one parcel with the home on it, all under one property tax number. So, again, there will not be any sale that will generate any revenue.

My sister and I are heirs to the estate and she is a Michigan resident too, and she has her own homestead to woryy about so she has no interest in this property, other than we keep it, and is in agreement with what I am doing.

I have paid the property tax, and I'm not challeging that, but having paid the tax, and living on the property, and being heir to the estate should provide me some leverage to be able to claim the tax credits as though I were the owner of record. I will be when the eststates closes.

Any suggestions from guru's?

Zwitter:

Sorry, but you pay property atxes that you are NOT legally liable for, those tax payments are NOT deductible.

That's black letter law.

Suggest you contact the Michigan authorities to settle on your income tax bill, and, while you are at it, amend your federal return to "unclaim" the deduction.

Therein lies the rub: You say I am not liable for the taxes, but I say that I am. Here is why I take this position: I am claiming the Michigan homestead exemption because I am an owner living on the property, and I have met the requirements for the credit.

Statin my original question in a different manner: If I can claim the homestead exemption as an owner, why can I not claim that taxes I paid on behalf of the estate, as an owner?

The money is coming out of my pocket no matter what way you look at it.

Herein lies the rub. You are NOT the owner, the estate is. So either Michigan is erroneously allowing you the exemption or they may have different rules on what qualifies someone as an owner for homestead purposes.

An Estate is a legal entity. As such, even though you may be a beneficiary of the estate, you are not yet the owner of the property.

Now you can appeal for a ruling on this from the IRS. The result might be that they allow the deduction or you could lose the homestead exemption. I'm not sure what will happen. But, base on what ATE said, I doubt if the IRS will concede.

A little more detail: I have a court order declaring me to be an owner of the property.

Hypothetical Question: What if the estate were broke? If I pay the taxes, and I am on owner, and I am living on the property, why would I not be able to claim the tax credit?

I finally got an answer out of my Tax Attorney. His opinion, knowing that I have been declared the owner by the courts, is that the tax credits would pass through the estate to the beneficiary, in this case.

If you have a court order declaring you the owner, then why haven't you changed the deeds?

But if you think you can prove to the IRS that you own the property, then deduct the property taxes. The likelihood is they will not check to confirm ownership unless they decide to audit your return.