4 Simple Ways to Manage Property Taxes in Your Self-Directed IRA
It’s that time of the year again— that time when you need to start planning to pay property tax on your investment property. Paying property taxes only happens once or twice a year, so it is easy to forget and fall into costly pitfalls, such as penalties or tax liens on your property for late payments. Here are some tips to safeguard your property and to ensure that your taxes are paid in a timely manner.
1) Identify What County Your Asset is in and its Associated Parcel Number (APN).
The first step is to identify what county your asset belongs to. This information can be located on the recorded deed. Every county is subject to different rules and potentially different tax due dates, so it is important to verify you have the correct information. The APN will help you and the county identify the property that you own and will be helpful for locating your property tax bill on the county’s website. The APN can be located on your recorded deed or the Title Insurance Policy. If you have trouble locating this information, feel free to contact us for assistance and we’d be happy to help you.
2) Understand the Due Dates and Delinquent Dates for Your County.
Most large counties have two due and delinquent dates to allow for payments to be made in two separate installments, instead of all at once. The due date generally gives an ample amount of time to ensure the payment will be received and that any issues can be brought to your attention before the due date. The delinquent date is the final date the county will accept payments without an added penalty. The most common due dates and delinquent dates are as follows:
- November 1 – First Installment Due Date
- December 10 – First Installment Delinquent after close of business
- February 1 – Second Installment Due
- April 10 – Second Installment Delinquent Date
These are only the most common dates, always be sure to consult the county website for the actual due dates.
Relevant: Self-Directed Real Estate IRAs and Taxes: The Basics of UBIT and UDFI
3) Check the County Website
With new real estate purchases, many times it takes the county recorder up to a year to change the mailing address for the property tax bill— but this does not mean your late charges will be waived or excused if you fail to pay on time. Counties often state that paper property tax bills are sent out as a courtesy and that failure to receive a bill does not absolve an owner from late payment. For this reason, if you don’t receive a paper bill, it is crucial to use the county website (if available) to determine what taxes are owed on your property. Checking the county website can also be helpful for determining if your payment was received by the county, as generally this process takes up to two weeks— another benefit to paying your property tax as early as possible.
4) Send the Full Amount Due
In general, counties will not accept partial payments. In the event there is a penalty assessed on your property, ensure that the amount you are paying to the county is fully up to date. Any error can lead to additional penalties accruing over the time it will take your payment to be returned to you via mail. This can be important when partnering with another individual to purchase a property. Counties ideally want the full payment amount (all checks) placed in the same envelope. The county will not match the checks for all owners of a single property if they arrive in separate envelopes. Be sure to contact your investment partner to ensure that you are both aware of the county property tax due dates.
Some of our clients partner with others or even with their own personal funds. This means that all income and expenses must be split based on percentage of ownership. If the ownership is a 50% split, one owner can pay the first installment and the other owner can pay the second installment.
In other cases, we encourage all owners to coordinate a payment to be mailed in a single envelope. This will help avoid delays in processing and associated late fees. We make this process easier by being flexible in our approach and working with individual clients. We are open to collecting the payments forwarded to us (with instruction) to be sent with the payments from the IRA. We are also open to forwarding the IRA payments to the account owner or IRA partner to ensure all payments can be delivered simultaneously.
Planning ahead and marking your calendar to coordinate payment of property taxes can save you time and money.