Is property tax deductible?
Oh the joys — and costs— of owning a home! One of those expenses that comes around each year is property tax. While you pay property tax at the state level, you may wonder how that relates to your federal taxes and what type of tax breaks you can get. The good news is that property tax deductions are a way to help lower your overall taxes.
Read on as we outline what property tax is and what you might be able to deduct.
Editor’s Note: Ever wonder about the details surrounding deducting property taxes? You’ve come to the right place.
What is Property Tax?
Property tax is real estate tax paid by the owner of a property. It is based on the value of the property. Your property is assessed by local government to determine how much your property is worth and how it should be taxed.
Property taxes are a major source of income for city, county, and state governments.
“Can I deduct property taxes?”
Generally, you can deduct real estate taxes paid on a property in the year you pay them.
Real estate taxes are deductible if:
- Based on the value of the property.
- Levied uniformly throughout your community.
- Used for a governmental or general community purpose.
- Assessed and paid before the end of the tax year.
You can deduct up to $10,000 (or $5,000 if married filing separately) of state and local taxes, including property taxes.
Deducting property taxes for real estate
Your mortgage lender might pay your real estate taxes from an escrow account. If so, they’ll send you Form 1098. This form will report any real estate taxes you paid. You should receive a Form 1098 by Jan. 31. If you don’t, contact your mortgage lender and they can resend the form.
Your real estate taxes may be divided if you bought or sold real estate.
- The seller can deduct the property taxes up to the date before the sale.
- The buyer can deduct property taxes starting on the date of sale.
- Your share of property taxes stays the same even if you paid all (or didn’t pay any) of the property taxes.
If you purchased or sold a home during the year, your Settlement Statement from the Department of Housing and Urban Development (HUD) will also report real estate and property taxes. The statement lists the taxes paid by both the buyer and seller.
Pro tip: If you own a condo, and your association charges you a special fee, you can’t deduct it as real estate tax. These fees are considered condo fees. However, you can deduct any amount of your fee that covers property taxes. If the condo association sends you a statement, it should tell you the amount of property tax the fees covered.
Where to report property tax breaks
Claim these as itemized deductions on Schedule A – State and local real estate taxes (Line 5b).
Personal property taxes
You can deduct the tax you pay on personal property — like cars and boats. Personal property tax — also called an excise tax — is based on the value of these personal items.
To deduct property taxes, all of these must apply:
- The tax is imposed on personal property.
- The tax must be ad valorem. This means it’s in proportion to the value of the personal property.
- The tax is imposed on an annual basis, even if collected more or less than once per year.
You can deduct up to $10,000 (or $5,000 if married filing separately) of state and local taxes, including personal property taxes.
Where to Report Personal Property on Your Taxes
Claim the itemized deduction on Schedule A – State and local personal property taxes (Line 5c).
Taxes you deduct elsewhere on your return — like for a home office or rental — don’t qualify for this deduction.
More Help on Property Tax Breaks
Navigating property tax breaks can be tricky – which is why you can ask for help. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you get back the most money possible.
Was this topic helpful?