Q&A: Is the Wisconsin Veterans Property Tax Credit Taxable for Federal Income Tax?

 

The question has come up whether the proceeds of the Wisconsin Veterans and Surviving Spouses Property Tax Credit are taxable. 

Here's what we learned after researching the question.

Is the amount of my veterans and surviving spouses property tax credit taxable on my income tax return for the year in which I receive it?

1. Federal treatment:

   The amount of the credit may be taxable for federal income tax purposes. The credit is considered a refund of property taxes (real estate taxes).

   If you itemized deductions for federal tax purposes on Schedule A and claimed a deduction for the amount of real estate taxes paid, the amount of veterans and surviving spouses property tax credit received during the year is taxable on your federal income tax return to the extent you received a tax benefit from the deduction.

   If you did not itemize deductions for federal tax purposes, the amount of veterans and surviving spouses property tax credit received during the year is not taxable on your federal income tax return.

   Example 1:

   You paid real estate taxes of $3,000 on your principal residence in 2010. You claimed the veterans and surviving spouses property tax credit of $3,000 which was refunded to you when you filed your Wisconsin income tax return in 2011. You deducted the $3,000 as a federal itemized deduction on your 2010 Schedule A. Your total itemized deductions were $8,000. Your federal standard deduction for 2010 would have been $5,700. Therefore, your tax benefit from the itemized deductions was $2,300 ($8,000 less $5,700). The $2,300 must be reported as income on your 2011 federal income tax return as a recovery of an itemized deduction.

   Example 2:

   The facts are the same as in Example 1 except that your total itemized deductions were $10,000 for 2010. Your tax benefit from the itemized deductions was $4,300 ($10,000 less $5,700). The entire $3,000 must be reported as income on your 2011 federal income tax return as a recovery of an itemized deduction.

   Wisconsin treatment:

   The amount of the veterans and surviving spouses property tax credit is not income on your Wisconsin income tax return. Wisconsin law allows a subtraction from federal adjusted gross income for any amounts that are recoveries of federal itemized deductions for which no tax benefit was received. Because no deduction has been allowed for property taxes or the property taxes cannot be used in the computation of the Wisconsin itemized deduction credit, no tax benefit was received for Wisconsin income tax purposes.

-------------------

Read many more top questions and answers about this property tax credit from the Wisconsin Dept. of Revenue, at: http://www.revenue.wi.gov/faqs/ise/vetprop.html