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

Andrew Dehan4-minute read

April 21, 2023


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 the property tax deduction compares to the standard deduction and how to actually claim the deduction come tax time.

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 is a deduction that 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 things like home renovations or local services listed on your tax bill, like trash collection, are not deductible.

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What Property Is Tax Deductible?

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

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

What Property Is Non-Deductible?

Not every property tax payment is deductible. Here’s a rundown of some of the things 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
  • The cost of home renovations
  • Costs for local improvement construction
  • Utilities or services like trash collection or water

How Does The Property Tax Deduction Work?

You can only claim the property tax deduction if you choose to itemize your taxes. If you claim the standard deduction, you’re not also eligible to claim your property taxes.

It’s up to you to figure out which decision makes the most sense financially for you. 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 depends 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.

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 the property taxes on 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 2021 and 2022

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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 gone down the list and weeded through 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, to get through the itemizing process only to realize 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 for a copy. 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 the taxes in the year you paid them.

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 provide a breakdown of the 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 ensured your deductions are correct and you have the right paperwork to account for the taxes you paid, you’ll need to complete the IRS Schedule A to claim the property tax deduction.

Ways For Homeowners To Save More On Their Property Tax Deduction

With the caps placed by The Tax Cuts and Jobs Act, saving more on your property tax deduction can be tricky for taxpayers. 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 when it comes to your home. Though tax rates can change based on legislation, a tax professional can help you estimate your taxes early. If you haven’t reached the maximum deduction for a particular year, prepaying your property taxes for the next year might save you money.

If you’ve already reached the capped amount for your property tax deduction, that doesn’t necessarily mean you’re out of 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: 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 rising each year, more and more people are finding that it outweighs the benefit that comes with itemized deductions. So look at your financials carefully and be sure to choose the option that will save you the most! As always, we recommend consulting a tax professional before making any decisions regarding your taxes.

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 start the mortgage approval process 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.