Here’s everything you need to be ‘in the know’ on escrow.
Escrow is likely a term you’ve heard before, but you may not know exactly what it entails. An escrow account is essentially a holding tank. In real estate transactions, it’s usually where your earnest money is held until closing. Specifically, it’s the title company, an unbiased third party, that holds your earnest money. When you go to close, it gets credited back to you.
There’s no penalty for you escrowing your property taxes, and you certainly still benefit from tax deductions.
Another type of escrow account has to do with the way you set up your mortgage payment. Unless you pay your property taxes and your property insurance together at one time during the year, those funds are also held in an escrow account by your mortgage service provider. In other words, with each mortgage payment, your service provider will collect and hold onto money for your taxes and insurance. They do this so that they can pay these fees for you when they’re due, which is typically at the end of the year.
A client recently asked, “If I escrow my property taxes, can I still benefit from property tax deductions?” The answer is yes—there’s no penalty for you escrowing your property taxes, and you certainly still benefit from deductions.
Please let me know if you have further questions on escrow accounts and how they work. I’m here to be a resource for you. As always, reach out to me via phone or email if you want to know about what the real estate market is doing and how it squares with your real estate goals. I look forward to hearing from you soon!