Property Tax Rebate Question
Will I have to pay state or federal taxes on my county-issued property-tax rebate?
Indiana will not tax this rebate. However, you may have to claim it on your federal tax return – depending on when you received the rebate. To determine if your county-issued property-tax rebate is taxable at the federal level, please visit: www.irs.gov/pub/irs-wd/0721017.pdf
A brief interpretation* of the Internal Revenue Services’ explanation is as follows:
- If you received a property-tax rebate in 2007, you will not have to include the rebate as income on your 2007 federal tax return. However, the amount of the rebate reduces the taxpayer’s real property tax deduction for federal income purposes.
- If you received a property-tax rebate in 2008 and:
- you did NOT itemize your deductions on your 2007 federal tax return, you will not have to include the rebate as income on your 2008 federal tax return.
- you itemized your deductions on your 2007 federal tax return, then you will have to include the rebate as income (known as recovery of itemized deductions) on your 2008 federal tax return. [You also will need to subtract the rebate off of your 2008 Indiana tax return.]
*This is a general interpretation, and not a binding IRS definition. You may want to consult an IRS representative for an official explanation