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Accounting for property taxes

property taxes, real estate taxes, accountingReal estate and personal property taxes can be a little tricky for some people to account for. For instance, in Arizona, taxes for the calendar year are generally due in two installments. The first installment for the first half of the year is due on October 1 and delinquent on November 1. The second installment for the second half of the year is due on March 1 of the following year and delinquent on May 1 of the following year. Keep in mind if the total amount of your Arizona real estate tax is $100 or less, the entire amount is due on October 1. If the delinquent dates fall on a weekend, the delinquent dates become the next business day.

Now that we have established the dates taxes are due, let’s discuss accounting for them. An accrual should be made monthly for an amount equal to the total of the taxes for the calendar year divided by 12. When you pay the taxes, the debit should go against the accrual. If you pay the whole tax bill in October, you should create a prepaid tax. If that is the case, you will have to reclass the balance in the accrual account to a prepaid for proper financial reporting purposes.

I recommend using the prior year’s tax bill as an estimate for the accrual at the beginning of the year. Once you receive the tax bill for the current year, you will want to adjust your accrual accordingly.

Other states, such as California, assess their property taxes on a fiscal year basis from July 1 through June 30. Their payments are generally due in November and April within the same fiscal year.

Just take your time and think the due dates and the time period covered through. Once you figure those items out, the accounting isn’t so bad. You’ll just want to make sure you are consistent from year to year, to make sure that you report a full year’s worth of property tax expense in your income statement.

Kane Lavin, CPA

Comments

  1. CPA in CA says:

    For situations where the fiscal year of the state is different from the calendar year, would you accrue monthly starting with the taxing entities fiscal year? For example, assume property taxes in California which are on a July 1 to June 30 California fiscal year.

    Do you accrue the property taxes monthly starting July 1 (July 1 to June 30 total tax divided by 12), or do you start the preceding January? Despite California’s taxable year being July 1 to June 30, the assesment is due on property as of January 1.

    • hhadmin says:

      I would start my accrual for California in July and base it on the prior year statement if you don’t not have the current one yet. Once you get the current year bill, adjust your accrual accordingly for the difference.

      My understanding of California is the 1st half (July 1st thru December 31st) is due on November 1st. The 2nd half (January 1st thru June 30th) is due April 1st. Based on this, the above method should work for you.

      Thanks for reading the blog,

      Kane Lavin, CPA