Join #1 A.I. tax service for freelancers

Resources

Home › Business › Federal Taxes › Property Tax Deduction

The Property Tax Deduction

Paying property taxes is a reality for many homeowners, but did you know that these payments can sometimes work in your favor come tax season? We'll take you through can you deduct property taxes if you don't itemize, can you deduct property taxes, how much of your property taxes are tax deductible and how can you write off property taxes.

Table of contents

Key Takeaways:...Read more

What are property taxes?...Read more

How to take the property tax deduction...Read more

Can you deduct property taxes if you don't itemize?...Read more

Can you write off property taxes?...Read more

How much of your property taxes are tax deductible?...Read more

How can you deduct property taxes?...Read more

Key Takeaways:

You can deduct property tax on your tax return if you itemize your deductions using Schedule A.
Since 2018, the property tax deduction is capped at $10,000 per year, including all state and local taxes.
Renters generally can't deduct property tax, but could qualify for state-specific property tax tax credits.

What are property taxes?

Property taxes are fees that homeowners pay to their local government. These taxes help fund essential public services like schools and roads. The amount you pay is usually based on the assessed value of your property, which includes both the land and any buildings on it. Now, you might be wondering, are property taxes deductible? The answer is yes, for many homeowners. This means you can reduce your taxable income by the amount you’ve paid in property taxes, which can help lower your overall tax bill. The rules around deductibility can vary depending on your location and personal financial situation, but this tax break can be a real benefit. The local government determines how much you owe based on your property’s value and applies a tax rate to it. If your home has a higher assessed value, you’ll typically pay more in property taxes—and you might have more to deduct come tax time. Check out IRS Publication 530 for more details.

Types of property taxes

There are a few different types of property taxes to know about. The most common is “real property taxes”, which are taxes on real estate. If you itemize your tax deductions, you can usually deduct these property taxes for your main home and any other real estate you own. You can only deduct taxes from the date you buy the property, and you can’t deduct any overdue taxes from before the purchase. Also, starting in 2018, the total amount you can deduct for state and local taxes, including property taxes, is capped at $10,000 per year. There are also “personal property taxes” that some states, cities and counties charge on items you own that are used to make money, like tools or equipment. Each local area has its own rules about what gets taxed and how to figure out its value.

What is deductible?

You can deduct property tax from your taxable income, which can help reduce your overall tax bill. Typically, you can deduct property taxes paid on your primary home, a vacation home, land you own, and even some personal property. For example, if you own a vacation cabin or a boat that you keep at a marina, you can deduct the property taxes you pay on these if you itemize your deductions on your tax return. However, not all property tax payments are eligible for deductions. You can’t deduct property tax paid on property you don’t own. For instance, if you help a family member by paying their property taxes, those payments aren’t deductible for you. Also, taxes paid on commercial or rental properties are generally not deductible under personal tax deductions. You can’t deduct property tax that you haven’t yet paid, nor can you deduct taxes paid on transferring the sale of a house. Expenses for home renovations or local improvements, like repaving your driveway or installing a new sidewalk, aren’t deductible either. Additionally, payments for utilities or services don’t qualify as deductible property taxes.

Infographic entitled What Property Is Tax Deductible showing the types of property eligible for the property tax deduction.

How to take the property tax deduction

Taking advantage of the property tax deduction can help lower your taxable income and potentially save you money on your tax bill. To start, gather all your documentation related to property taxes. You’ll need records of the property taxes you’ve paid, which are usually provided by your local tax assessor or county treasurer. These statements are typically sent annually but can also be accessed online or through your local tax office. Once you have your documents, you’ll need to itemize your deductions on your tax return. This involves filling out Schedule A if you’re using Form 1040. Be sure to include only the taxes paid during the tax year. If you made payments at the end of one year that apply to the next year's taxes, only the portion paid in the current year is deductible. Similarly, if you pay property taxes at closing when buying a home, include those payments, but remember that any overdue taxes paid for the seller cannot be deducted. Some states offer property tax tax credits that can help reduce your tax bill. Unlike deductions, which lower your taxable income, these credits directly cut down the amount of tax you owe, giving you more immediate savings. Each state has different programs, so it's important to see what’s available where you live.

Schedule A

When you're looking to make the most of your property tax write off, Schedule A on your tax return is where you'll need to focus. This form allows you to itemize your deductions, which means you can list specific expenses to reduce your taxable income. The property tax write off is one of these expenses, so if you choose to itemize, you can include the property taxes you’ve paid during the year. On Schedule A, you’ll find a section for state and local taxes where you can enter your property tax write-off. Simply list the total amount of property taxes you paid throughout the year. If you bought a home during the year, remember to include the property taxes paid at closing, but only for the part that applies to the current year. In 2023 and 2024, you can deduct up to $10,000 ($5,000 if married filing separately) for a mix of property taxes and state or local income or sales taxes. Renters may also be eligible for a property tax deduction or credit on their state taxes.

Can you deduct property taxes if you don't itemize?

If you’re wondering whether you can deduct property taxes if you don’t itemize, the answer is no. To claim a property tax deduction, you have to choose to itemize your deductions on your tax return, which means using Schedule A to list various expenses. If you opt for the standard deduction instead, you won’t be able to claim property taxes as a deduction. The standard deduction is a set amount that reduces your taxable income without needing to itemize. For many people, it simplifies the filing process and might offer a better tax benefit. However, if you don’t itemize, you miss out on the chance to deduct property taxes, along with other itemizable deductions like mortgage interest and charitable contributions. It’s worth considering whether itemizing could benefit you more than taking the standard deduction. If your total itemized deductions, including property taxes, exceed the standard deduction amount, itemizing could lower your tax bill more effectively. To make the best choice, add up all your itemized deductions and see if they’re more than the standard deduction.

Can you write off property taxes?

Property taxes are deductible if you itemize your deductions on your tax return. To deduct property tax, use Schedule A on Form 1040 to list the property taxes you’ve paid during the year.

How much of your property taxes are tax deductible?

Figuring out how much of your property taxes are tax deductible can make a big difference in your tax return. For most homeowners, the amount of property taxes you can deduct depends on a few key factors. First, you need to be aware of the cap on the property tax deduction. Since 2018, you can deduct up to $10,000 per year for state and local taxes combined, including property taxes. If you’re married and file separately, the limit is $5,000. This cap includes all state and local taxes, so if you live in a high-tax state or have significant state income taxes, you’ll need to make sure your total doesn’t exceed these limits. To figure out how much of your property taxes are deductible, gather your property tax bills and other relevant records. Only the amount of property taxes you actually paid during the year is deductible. If you’ve paid taxes in advance for future years, or if you covered any overdue taxes for the previous owner of a property, those amounts won’t count towards your deduction. If you rent, the situation is different. If you’re a renter, you generally cannot deduct property taxes directly, but look into state-level deductions or credits related to property taxes.

How can you deduct property taxes?

To take advantage of the property tax deduction, start by collecting all your property tax statements and payment records. These are often available from your local tax assessor’s office or online through your county’s website. When filing your taxes, use Schedule A on Form 1040 to itemize your deductions. If you’re buying a property or paying property taxes at closing, include these amounts in your deduction as well, but only for the current year. Payments for past due taxes are not deductible. You can always hire a tax pro to help if you need it.

Tax on inherited stocks

The states with lowest property tax are Hawaii, Alabama, Colorado, Nevada, Utah. Assessing property tax by state is a key factor in deciding where to live.