Property taxes can be a big expense for homeowners and property owners. But in some cases, you can deduct those property taxes from your tax return. Home, condo, or even rental property owners need to understand how property tax deductions help to save your money when tax season arrives. How property tax deductions help to save your money when tax season arrives. In this brief, we will discuss property taxes deductible and explain everything you need to know about claiming property tax deductions.
What Are Property Taxes?
Property taxes are taxes on real estate. It can be on any physical property that is collected by local governments to fund public services like schools, road maintenance, police departments, and emergency services.
Property taxes are often paid by the owner annually and can vary depending on the location and the value of your property.
Can You Deduct Property Taxes?
In many cases, yes! You can deduct the amount you paid in property taxes. But there are a couple of catches.
- First off, you need to itemize your deductions. That means using Schedule A when you file your federal return. If you take the standard deduction, you’re out of luck. Property tax deductions only apply if you itemize.
- Second, there is a limit. Second, there is a limit. According to the 2017 Tax Cuts and Jobs Act, you can only deduct a limited amount on itemized deductions. It includes property taxes. Right now, that limit is $10,000 per year, or $5,000 if you’re married and file separately.
So, even if you paid $12,000 in property taxes, you’d only be able to deduct up to $10,000. That’s the max.
Not Everything is Deductible!
Quick heads up: Homeowners insurance is not deductible. A lot of people confuse it with property taxes, but insurance costs are not something you can write off if it is for your personal home.
If you own a rental property, that is different, but we will get to that.
What If You Own a Condo?
Yes, condos come with property taxes too, they are just baked into your ownership like with a house. How much you pay will still depend on the property’s assessed value and your location.
You can still deduct those taxes, assuming you meet the same conditions: you itemize, and you are within the SALT cap.
Real People Tips: How to Claim It
Here’s what you need to do:
- Find your property tax bill or look at your mortgage statement, sometimes it is paid through escrow.
- Use Schedule A on your Form 1040 to enter the amount.
- Keep it under that $10,000 SALT cap. Otherwise, the IRS won’t count the full amount.
If you are unsure, talk to a tax pro. It is better to double check than risk a mistake.
What About Rental Property?
Totally different rules. If you rent out a property, you usually deduct property taxes as a business expense, even if you are not itemizing. Rental property taxes get reported on Schedule E, not Schedule A.
Wrapping Up
So you can deduct property taxes, but only if you itemize and stay within the $10,000 limit. It is not as straightforward as it used to be, but it’s still a helpful break if you qualify.
Reach out to a tax expert or let the Tax King know if you need help to figure it out for your own situation. We will take care of it for you.
FAQ’s
Yes, you can claim property taxes on your income tax, only if you itemize your deductions. You’ll need to use Schedule A on your federal return (Form 1040) to claim them. If you take the standard deduction, you won’t be able to include property taxes.
No, unfortunately! Property taxes are not deductible if you are using the standard deduction. This is one of the biggest changes that arrives with the Tax Cuts and Jobs Act. To deduct them, you must itemize.
There is no separate “property tax return” in most cases. Your property taxes are reported as part of your income tax return, usually on Schedule A if you are itemizing. But always check with your local tax office, some states may have additional filing requirements for property tax credits or rebates.
No problem. If your mortgage lender pays the property taxes for you, which is pretty common. You’ll probably see the total amount listed on Form 1098. Check Box 10 for that number. That is what you need when you fill out Schedule A to itemize your deductions.
Yes, in some cases, property taxes are deductible! If you paid taxes on items like cars or boats, you can deduct those too, as long as the tax is based on the item’s value and charged annually. These are reported on Schedule A as well, under personal property taxes.
