What Is The Property Tax Deduction And How Do You Claim It?

Homeownership comes with many financial advantages. The ability to take a property tax deduction is one of those advantages. But this deduction only makes sense to taxpayers in select situations. Let’s explore how property tax deductions work and if this option makes sense for your finances.

What Is The Property Tax Deduction?

The property tax deduction, sometimes called the real estate tax deduction, allows eligible homeowners to deduct their local property taxes from their federal income taxes.

Are Property Taxes Deductible?

You're allowed to deduct your property taxes each year. The 2017 Tax Cuts and Jobs Act capped the state and local tax (SALT) deduction at $10,000, which applies to singles, heads of household and married couples filing jointly. But if you are married and filing separately, the deduction is capped at $5,000.

In addition to capping property tax deductions, the 2017 Tax Cuts and Jobs Act increased the standard deduction. As a taxpayer, you can choose to take the standard deduction or itemize your deductions. If you decide to itemize your deductions, your property taxes might be one deductible you include in the itemization.

What Properties Are Tax Deductible?

The taxes you pay as the owner of the following properties may qualify as deductions on your federal taxes:

• Primary residences
• Vacation homes and certain rental or investment properties
• Land
• Cars and other vehicles
• Boats

What Isn’t Eligible For The Property Tax Deduction?

Not every type of property tax you pay will qualify as a deduction. Below are some of the types of taxes that don’t qualify as a deduction:

• Taxes on properties you don’t own
• Transfer taxes on the sale of a property
• Property taxes you haven’t paid yet
• Taxes on home renovation costs
• The cost of home renovations
• Homeowners insurance
• Utility payments, like water or electricity

Property Tax Deduction FAQs

You have questions about property tax deductions. We have answers.

What's the difference between a tax deduction and a tax exemption?

Property tax exemptions are portions of a full tax amount that taxpayers don’t have to pay. Some state and local governments offer exemptions to reduce or forgo the amount of taxes paid by some residents, usually on the basis of age, disability, military service or residency requirements. To see if your municipality offers an exemption and whether you qualify, check your local government's website.

Is property insurance tax deductible?

Property insurance, like your homeowners insurance policy, is generally not tax deductible. But if you own a rental property, property insurance could be tax deductible.

How do I deduct property taxes if I recently bought or sold a house?

If you recently sold or bought a home, you are able to deduct the amount of property taxes you paid for the year. Since the total property tax bill for the year is divided between the buyer and seller, you can only deduct what you paid during the tax year.

The Bottom Line

The 2017 tax law modified many rules, but it still allows at least a partial property tax deduction. Whether it makes sense for you to take it depends on your individual situation, but many homeowners will find that the standard deduction more than makes up for the cap on the deduction.

If you’re ready to become a homeowner, and potentially take advantage of property tax deductions, then start a mortgage application today.

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