2026 Form 8960 Line 9b - Real property taxes not being included

JDB67
JDB67 Member Posts: 1 Newcomer
in General

Posting this under General, because there is no category for Taxes.

For the above form and line, the IRS instructions state, "Include state, local, and foreign income taxes you paid for the tax year that are attributable to NII. Include also state, local, and foreign real property taxes paid for the tax year, as well as state and local personal property taxes paid that are attributable to NII." I believe this may be a change from previous years.

This would appear to indicate that the taxes would be taken from Schedule A, line 5d (or possibly line 5e, if the 2025 limit of $40,000 is considered, but that's another question) and prorated based on the ratio of NII, Form 8960 line 8, to MAGI, Form 1040 line 11a, as an example of a "reasonable method of allocation". FreeTaxUSA is only using state and local income taxes from Schedule A line 5a, and ignoring real estate and personal property taxes in lines 5b and 5c. This appears to be in contradiction to the IRS instructions.

Some may think that the real estate and personal property taxes should be included only if paid on rental properties, but the IRS instructions don't have that limitation, and appear to treat income and real estate and personal property taxes as equivalent, as long as they are "attributable to NII", with that last part being done by the reasonable method allocation.

FreeTaxUSA does allow the user to overwrite the calculation from Sched A line 5a, but I think this default should be changed to use line 5d or line 5e, unless there is a contradictory ruling from the IRS that provides more clarity on real and personal property taxes.

Tagged:

Comments

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 901 image
    Hello JDB67,

    Thank you for posting this concern. Generally, the best way to report a software issue is to contact our Customer Support through the Customer Support portal while signed into your account.

    I went ahead and reported this to our team that handles issues like this.
  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 901 image

    Hello JDB67,

    I got word from our team. This has been fixed in the software and should now be available.

Categories