A lot of homeowners ask themselves if property taxes can be deducted from their federal tax return. The answer is yes, property taxes can be deducted, but only under certain conditions set forth by the Internal Revenue Service (IRS).
When Are Property Taxes Deductible?
In this situation, property taxes are deductible if you choose to itemize your deductions on Schedule A (Form 1040) instead of opting for the standard deduction. The deduction is applicable for state and local real estate taxes that are:
- Based on the assessed value of your property
- Levied for the general public welfare (such as funding schools, police, and roads)
- Imposed uniformly across the jurisdiction
In these cases, you can claim property taxes paid on your primary home, a second home, or even land you own as long as these IRS conditions are satisfied.
The SALT Deduction Cap
Property taxes are under the State and Local Tax (SALT) deduction which comes with very rigid limitations:
- A maximum of $10,000 per year for individuals and joint filers
- A maximum of $5,000 for married tax filers who file separately
These restrictions apply to all state and local taxes bundled together. This means property taxes, state income taxes, and even sales taxes. This is especially a problem for homeowners in high-tax states, as these restrictions mean that you cannot deduct your entire property tax bill.
What Isn’t Deductible?
Not all charges on your property tax bill qualify. Non-deductible items include:
- Fees for water, trash collection, or sewer services
- Special assessments for improvements like sidewalks or street lights
- Payments that aren’t taxes, like voluntary contributions
How to Take the Deduction
To take this deduction, you must:
- Itemize on Schedule A
- Maintain tax bill and payment proofs for necessary records
- Itemize and see if standardized deduction provides lesser savings
Bottom Line
In IRS statutes, property taxes can be deducted if the taxpayer itemizes and remains within the SALT cap. However, restrictions mean a lot of homeowners—particularly those in high-tax states—may not fully realize benefits. If you need clarity on your property tax deductions, contact Dimov NYC CPA today. Our team is ready to present expert guidance.