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Property Tax Deduction: A Guide To Writing Off Real Estate Tax

Andrew Dehan4-minute read

October 09, 2021

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As a homeowner, paying property taxes can feel like a hefty financial burden. But the good news is that you do have an option to write off those tax payments when it’s time to file with the IRS.

With the property tax deduction, you could save significant money. It’s important to know what and how much you can claim, how this will compare to the standard deduction and how to actually claim the deduction come tax time.

Let’s take a closer look at this topic so you can make an informed decision on whether 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 deduct the state and local taxes you’ve 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, though, that taxes on things like home renovations or local services listed on your tax bill, like trash collection, are not deductible. 

What Property Is Tax Deductible?

Here’s a basic list of the property tax that’s eligible to be deducted from your taxes. 

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

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What Property Is Non-Deductible?

And here’s a rundown of some of the things you won’t be able to deduct.

  • Tax you’ve paid on property you don’t own
  • Tax you’ve paid on commercial or rental property
  • Taxes you haven’t yet paid
  • Taxes paid on transferring the sale of a house
  • Home renovations
  • Loans on energy-efficient upgrades
  • Local improvement construction
  • Utilities or services like trash collection or water

How Does The Property Tax Deduction Work?

The most important rule to remember is that you can only claim the property tax deduction if you choose to itemize your taxes. If you claim the standard deduction, you’re not eligible to also claim your property taxes.

It’s up to you to figure out which decision makes the most financial sense. Depending on your personal situation, the standard deduction could be higher than what you would save by itemizing, so be sure to do the math and choose wisely.

How Much Can Be Deducted?

The total amount you can deduct is dependent on the changes to the Tax Cuts and Jobs Act, which was passed at the end of 2017. This affects both itemized and standard deductions.

Let’s unpack that a little bit.

Itemized Property Tax Deduction

The Tax Cuts and Jobs Act capped the deduction for state and local taxes, including property taxes, at $10,000 ($5,000 if you’re married and filing separately). This means that if the amount of taxes you’ve paid out over the course of the year exceeds those amounts, you’re not able to claim the full amount of your property taxes.

Plus, this cap is on a combination of taxes – not just your home. In addition to property taxes, the cap includes state and local income and sales taxes (aka the SALT deduction), so you’ll likely exceed that capped amount quickly. 

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 further on the rise.

Standard deduction amounts for 2020 and 2021

Filing Status

    2020

    2021

Single Filers

  $12,400 

  $12,550

Married Couples

  $24,800

  $25,100

Heads Of Household

  $18,650

  $18,800

How To Claim The Property Tax Deduction

Once you’ve determined 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 gone down the list and have weeded through which deductions you can take and which you can’t, but it’s worth a second comb-through. The last thing you want is to complicate your tax filing with incorrect information – or worse, to get through the process only to realize you would have actually saved more with the standard deduction.

  1. 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 for a copy. This information is critical to have on file so that you know exactly what you paid in a given year, and what actually should be deducted from the next year.

Remember, you can only deduct the taxes in the year you paid them. 

  1. 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 provide a breakdown of the property tax payments the lender has made on your behalf.

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

  1. Use Schedule A To File

Once you’ve ensured your deductions are sound and that you have the right paperwork to account for those taxes paid, you’ll need to complete the IRS Schedule A to claim the property tax deduction. 

The Bottom Line: The Standard Deduction Could Save You More

Owning a home comes with a lot of financial benefits – especially come tax season. The property tax deduction can be a great way for homeowners to save money, but it’s critical to understand exactly what can be deducted and how the capped amount compares to what you could save with the standard deduction.

With the standard deduction ever on the upswing, more and more people are finding that this option outweighs the benefit that comes with the itemized deductions. So look at your financials carefully and be sure to choose what will save you most!

And if you don’t yet own a home, but you’re looking into the financial benefits of purchasing, now is a great time to talk to a Home Loan Expert and get the ball rolling. 

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Andrew Dehan

Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.