Anyone who owns a piece of real estate – whether it’s personal property or commercial real estate – must pay property taxes. Property taxes are a significant source of revenue for local, county, and state governments.
The market value of the property determines the amount owed. Local government officials will assess your property to determine its value. That assessed value of your property will determine how much tax you’ll have to pay on it.
Below we’ll answer the common question “are property taxes deductible?” This way you’ll know if you can write them off come tax time to reduce your income tax bill.
Are Property Taxes Deductible?
Yes, property taxes are tax-deductible. That means that you can deduct property taxes from your tax liabilities.
Depending on your circumstances, you may be able to deduct your personal property taxes and real estate taxes paid from your federal income tax bill. In fact, one of the many advantages of being a homeowner is deducting your property taxes.
Generally, state and local property taxes are deductible from a property owner’s federal income taxes if the property owner pays them. Local and state tax authorities calculate property taxes based on the value of houses located within their jurisdictions, and some agencies also tax personal property.
However, this tax credit isn’t quite as nice as it once was for many Americans. That is because, beginning with the 2018 tax year, the Tax Cuts and Jobs Act (TCJA) limited the amount that could be deducted for property taxes and other state and local taxes.
The deduction for state and local taxes, including property taxes, was limited to $10,000 under the new law ($5,000 if married filing separately). Previously, there was no restriction on the amount of the deduction.
The standard deduction was also increased as a result of the 2017 legislation. With inflation-related increases beginning in 2022, the standard deduction can increase to $12,950 if you file separately as a single person or as a married couple. Heads of households are eligible for a standard deduction of $19,400 per year. If you’re married and filing jointly with a joint income, then the standard deduction is $25,900.
What Kinds Of Properties Qualify?
You may be able to deduct the property and real estate taxes you pay on the following types of property:
- Primary home
- Co-op apartment
- Vacation homes
- Land
- Property outside the United States
- Cars, RVs, and other vehicles
- Boats
Properties That Are Not Tax-Deductible
But that is the limit of what the IRS allows you to deduct on property and real estate taxes. They do not allow you to deduct the following on property taxes:
- Taxes on real estate that you do not own
- Unpaid property taxes
- Streets, sidewalks, or water and sewer infrastructure assessments in your neighborhood.
- The percentage of your tax bill that is directly related to services such as water or trash
- Transfer taxes on home sales
- Assessments made by homeowners associations
- Payments on loans used to pay energy-efficiency improvements to homes
- Over $10,000 ($5,000 if married filing separately) in property taxes, state and local income taxes, or sales taxes
Taxes on rental or commercial property — and property not held by the taxpayer — are not deductible.
Additionally, a homebuyer who pays the seller’s outstanding taxes from an earlier year when the sale is closed is not permitted to deduct these tax payments on their tax return. Rather than that, the delinquent tax payment is treated as part of the cost of the residence.
Lastly, a property owner’s tax payment includes additional items that are not tax-deductible. A few of these items are payments for upgrades to a local residential area, such as sidewalks, and fees for service delivery, such as garbage collection.