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How To Claim The Property Tax Deduction: A Helpful Guide

March 18, 2024 5-minute read

Author: Victoria Araj

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As a homeowner, paying property taxes can feel like a hefty financial burden, but homeownership comes with tax benefits, too. One is the option to write off those tax payments when it’s time to file with the Internal Revenue Service (IRS).

You can write off property taxes and potentially save a significant amount of money every year. It’s important to know what and how much you can claim, how the property tax deduction (also referred to as real estate tax deduction) compares to the standard deduction and how to actually claim the deduction when tax season comes around.

Let’s take a closer look so you can decide if the property tax deduction is the best financial move for you.

What Is The Property Tax Deduction?

The property tax deduction allows you as a homeowner to write off state and local taxes you paid on your property from your federal income taxes. This includes your annual property taxes on the assessed value of your house as well as the taxes you may have paid at closing during the sale or purchase of the property.

Keep in mind that taxes on items like home renovations or local services listed on your tax bill, e.g., trash collection, aren’t deductible.

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What Property Is Tax Deductible?

Here’s a basic list of property taxes that are eligible as deductions:

  • Primary home
  • Vacation home
  • Land
  • Vehicles
  • Boats

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What Property Is Non-Deductible?

Not every property tax payment is deductible. Here’s a rundown of some items you won’t be able to deduct:

  • Taxes paid on a property you don’t own
  • Taxes you paid on commercial or rental property
  • Taxes you haven’t yet paid
  • Taxes paid on transferring the sale of a house
  • Costs for home renovations
  • Costs for local improvement construction
  • Utilities or services like water or trash collection

How Does The Property Tax Deduction Work?

You can claim the property tax deduction only if you previously bought a home or property and choose to itemize your tax return. If you claim the standard deduction, you’re not eligible to claim your property taxes.

It’s up to you to decide which option makes the most sense financially. Depending on your personal tax situation, the standard deduction could be more than what you would save with itemized deductions, so be sure to do the math and choose wisely.

How Much Can Be Deducted?

The total amount you can deduct depends on changes to the Tax Cuts and Jobs Act, passed at the end of 2017. It affects both itemized and standard deductions.

Itemized Property Tax Deduction

The Tax Cuts and Jobs Act capped the deduction for state and local taxes at $10,000 ($5,000 if you’re married filing separately). This cap is on a combination of taxes – not just property taxes. It also includes state and local income taxes and sales taxes (aka the SALT deduction), so you’ll likely exceed that capped amount quickly.

This means that if the amount of taxes you’ve paid out over the course of the year exceeds these amounts, you won’t be able to claim the full amount of your property taxes.

Standard Deduction

While the Tax Cuts and Jobs Act capped the deduction for property taxes, it also nearly doubled the amount of the standard deduction. It should be noted that standard deduction amounts are indexed annually for inflation, so they’re continually rising.

How To Claim The Property Tax Deduction

If you determine that the sum of all your itemized expenses is greater than the standard deduction allowed for the year, you’re ready to move forward with the property tax deduction.

Before you get started, there are a few things you’ll need to do.

1. Double-Check The Eligibility Of Your Deductions

Yes, you’ve already weeded through your list to determine which deductions you can take and which you can’t, but it’s worth a second look. The last thing you want is to complicate your tax filing with incorrect information. Or worse, realize once you’re done that you would have saved more with the standard deduction.

2. Get A Copy Of Your Tax Records

Your property tax bills are usually sent to you twice a year by the government, but if you don’t have a copy of them handy, reach out to your local tax authority. This information is critical so you can know exactly what you paid in a given year and what you’ll deduct from the next year.

Remember, you can only deduct taxes for the year they were paid.

3. Check Your Escrow Account

If your property tax payments are made through an escrow account, you’ll get a 1098 statement from your lender. The statement will likely show the amount of deductible mortgage interest you paid for the year, but it will also break down property tax payments the lender has made on your behalf.

Again, you’ll deduct only the taxes paid out in the tax year at hand.

4. Use Schedule A To File

Once you’ve confirmed your deductions and have the right paperwork to document the taxes you paid, you’ll need to complete the IRS Schedule A form to claim the property tax deduction.

Ways To Save More On Your Property Tax Deductions

With the caps placed by the Tax Cuts and Jobs Act, taxpayers might find that saving more on property tax deductions can be tricky. If you haven’t met the deduction cap, there are a few options you can explore with your tax attorney, including:

Other Property Deductions

It’s easy to get tunnel vision regarding your home when itemizing your property taxes. Don’t forget that other property such as boats, cars or other real estate you own might also qualify for your property tax deduction.

Prepaying Property Taxes

Prepaying your property taxes is another money-saving option. Though tax rates can change based on legislation, a tax professional can provide you with a tax estimate. If you haven’t reached the maximum deduction for a particular year, prepaying your property taxes for the next year might save you money.

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Ways To Save If You’ve Already Reached The Capped Amount

If you’ve already reached the capped amount for your property tax deduction, that doesn’t necessarily mean there aren’t other ways to save money on your income taxes. Consider looking into some of these options:

Federal Energy Incentive

This federal credit might save you up to $500 if you made updates to your primary residence. Solar upgrades, more efficient boilers or heat pumps and even the addition of small wind turbines may qualify for the credit.

State Tax Credits

Many states (like California and Massachusetts) have tax credits or exemptions for lower-income individuals who own property, general home improvements made for health and safety, energy efficient upgrades and more. It’s worth looking into any state credits that could add up to big tax savings.

The Bottom Line

Homeownership comes with a number of financial decisions, and tax time may bring up a new round of questions about whether you should write off your property taxes.

Regarding property taxes, it’s important to make sure the property you’re claiming is tax deductible. Also, be aware of any recent changes to tax laws to claim the correct properties on your tax forms and decide whether the standard or itemized deduction is right for your situation.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.