Taxes & deducting rental property taxes & insurance

[Paolo Ertreo]

I am going to file my 2022 taxes as a landlord (for the first time). I have only received a form 1098 from my mortgage company. These forms have a field for "prop tax" and "insurance paid" but they both show $0 paid in 2022 (not true as I pay my taxes and insurance altogether with the mortgages).

What documentation is needed to show that I've in fact paid property taxes and insurance (and hence can deduct them from the properties' income)?

Thanks in advance

[Paul T.]

Quote from @Paolo Ertreo:

I am going to file my 2022 taxes as a landlord (for the first time). I have only received a form 1098 from my mortgage company. These forms have a field for "prop tax" and "insurance paid" but they both show $0 paid in 2022 (not true as I pay my taxes and insurance altogether with the mortgages).

What documentation is needed to show that I've in fact paid property taxes and insurance (and hence can deduct them from the properties' income)?

Thanks in advance

First, let’s clarify a few things.

You write that 2022 is your first year as a landlord. I am going to assume that means you (a) bought the rental property in 2022, and that you also obtained your current mortgage in 2022.

Then you state you pay your taxes and insurance with your mortgage each month. Actually, you probably pay money for your taxes and insurance, into a mortgage impound (escrow) account, each month. (It makes a difference.) That does not mean you (or the mortgage servicer) actually pay the taxes or insurance each month, only that the money goes into the impound account so the mortgage servicer has the money available, to pay your taxes and insurance, when the bills for each come due.

There are three possible reasons I can think of, why your 1098 would have -0- paid for taxes and insurance. (1) The mortgage servicer made a mistaken on your 1098, and failed to report taxes and insurance paid by the servicer. (Unlikely, but possible.) (2) The mortgage servicer did not pay your taxes or insurance when due. (Unlikely, but possible.) Or (3) as of 12/31/22, there were no taxes or insurance paid by the mortgage servicer because none had been billed or were due between the date of your home loan, and 12/31/22. (Most likely.)

Generally, if you closed on the loan within sixty days of when your property taxes were due, or your insurance payment was due, you (not the mortgage servicer) were likely required to prepay your upcoming property taxes and insurance, at the time of your loan closing. (Some lenders and/or loan programs may require prepayment greater than 60 days.) So if, for example, you closed your loan on this property on October 11, 2022 (and maybe as early as 7/1/22), or later in the year, you were probably required to deposit into escrow at the time of loan closing, the full amount of the upcoming 12/10/22 property tax payment (in CA), (less the prorated amount being paid by the seller), and the full amount of your first year’s insurance. If that happened, even though you are paying monthly into the mortgage servicer’s impound account for FUTURE taxes and insurance, the first property tax bill the mortgage servicer would normally pay would be the April 10, 2023 tax bill, and then the October 11, 2023 insurance renewal, neither of which would show up on your 2022 1098 because neither have been paid yet.

So if you think the servicer made a mistake on the 1098 and failed to report payments actually made by the servicer for taxes or insurance in 2022, contact the servicer and request an amended 1098. If you think the servicer made a mistaken and didn’t actually pay property taxes or insurance when due, and thus caused a penalty or late charge to be assessed, contact the servicer to make sure the delinquent amount has been paid and the penalty and/or late charge, was paid by the servicer (it was the servicer’s mistake) and not paid from your impound account, and obtain an amended 1098. And if you paid the initial taxes and insurance at the time of loan closing, and the 1098 accurately states the mortgage servicer has not paid anything (yet), then your “documentation” that you need will be the title/escrow company’s Final Closing Statement for the loan and it should clearly identify prepaid taxes and insurance. (And you or your tax professional will need that closing statement for that and other reasons, in order to prepare your 2022 income taxes.)