You're Welcome: Tax Relief Taxable

If I had to say something nice about tax season it would be that this is the last time we'll have to think about the House Democrats' property tax rebate scheme.  We've talked about this before so we won't belabor the fine points.  The latest debacle with the program, designed to shower political love on Pat Bauer, is that the tax rebates are taxable.  Well, maybe they are.  The bottom line is that it has to be a wash for the federal government.  So if you deducted your property taxes last year and then received a rebate, it's technically untaxed income.  The South Bend Tribune does a little Q&A to help you figure it all out:

I'm sure you have had the question many times, but do we have to report the property tax rebate on our tax returns?

B.T., via e-mail

Yes, you're right, B.T., we've heard (and read) that question many times lately. And here's the one word answer: maybe!

If you itemized deductions (or are going to) on your 2007 tax return, and if you took a deduction for the property tax you paid during 2007, then you have to report the rebate as income in 2008. On the other hand, if your 2007 tax return includes the "standard deduction" (tax speak for "you did not itemize deductions") then you don't have to report the rebate since you never received a tax benefit for the property taxes you paid.