I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.See all posts Frank Gogol
Are Real Estate Taxes Tax Deductible?
At a Glance
- Real estate taxes may be deductible on federal income tax returns
- Conditions for deductibility include being based on assessed property values and charged uniformly
- The Tax Cuts and Jobs Act implemented a cap on state and local tax deductions, including real estate taxes
- To claim real estate tax deductions, itemize deductions on Schedule A (Form 1040)
Homeownership comes with various financial responsibilities, including real estate or property taxes. But with these responsibilities, you might also find some tax benefits. One key benefit that homeowners might be eligible for is the deductibility of real estate taxes on their federal income tax returns. Understanding the rules set by the Internal Revenue Service (IRS) is crucial for taking advantage of this deduction. This article will discuss the conditions under which you can deduct real estate taxes and how to claim them.
Deductibility of Real Estate Taxes
Real estate taxes, often referred to as property taxes, are imposed by state, local, or foreign governments on your property. They are typically based on assessed property values and are used to fund various public services.
The IRS and Real Estate Tax Deductions
The IRS allows you to deduct real estate taxes paid on property you own, provided you itemize your deductions on your return. To qualify, the tax must be:
- Based on the assessed value of the real property
- Levied for the general public welfare
- Charged uniformly against all property under the jurisdiction
For detailed guidance, refer to IRS Publication 530, Tax Information for Homeowners, which provides valuable information about tax deductions related to homeownership.
Limitations Under the SALT Deduction
The Tax Cuts and Jobs Act of 2017 (TCJA) capped the total amount of state and local taxes (SALT), including real estate taxes, that may be deducted. Starting in 2018 through the 2025 tax year, the maximum SALT deduction individuals can claim is $10,000, or $5,000 if married filing separately. This SALT deduction cap applies to the combination of real estate taxes as well as state and local income or sales taxes.
You can learn more about the SALT deduction limit on the IRS’s SALT deduction page.
How to Claim Real Estate Tax Deductions
To claim a deduction for real estate taxes:
- You must itemize your deductions by filling out Schedule A (Form 1040), Itemized Deductions.
- Record the amount of real estate taxes paid during the year on the appropriate line for property taxes.
- Your total SALT deduction, including real estate taxes, is limited to $10,000 ($5,000 if married filing separately).
When claiming real estate tax deductions, it’s important to keep supporting documentation such as:
- Tax bills from your local government
- Receipts showing the amount of property taxes paid
- Statements from escrow accounts if property taxes are paid through your mortgage lender
Real estate taxes can be deductible on your federal income tax return, which can provide a valuable tax saving for homeowners. However, understanding the limitations and rules—particularly the SALT deduction cap—is crucial to properly itemize these deductions and comply with IRS requirements.
The benefits of deducting real estate taxes should be carefully considered, especially since the TCJA nearly doubled the standard deduction, which may make itemizing less advantageous for some taxpayers. Consulting a tax professional can help clarify whether itemizing and claiming real estate tax deductions is the best approach for your situation.
Always visit the IRS website for the most current tax information, including updates on property tax deductions. For broader information on homeownership and government resources, browse through USA.gov’s Housing section, which can serve as a comprehensive guide to various home-related topics and assistance programs.
- Are Rental Property Depreciation Expenses Tax Deductible?
- Are Professional Association Dues Tax Deductible?
- Are Personal Exemptions Tax Deductible?
- Are Moving Expenses Tax Deductible?
Frequently Asked Questions (FAQ)
Are all real estate taxes tax deductible?
Real estate taxes may be deductible on federal income tax returns, but certain conditions must be met. The tax must be based on the assessed value of the property, levied for the general public welfare, and charged uniformly against all property under the jurisdiction.
Can I deduct real estate taxes if I don’t itemize deductions?
No, to claim real estate tax deductions, you must itemize your deductions on your federal income tax return using Schedule A (Form 1040).
How can I find out the amount of real estate taxes paid during the year?
You can refer to tax bills from your local government or keep receipts showing the amount of property taxes paid.
Is there a limit on the amount of real estate tax deductions that can be claimed?
Yes, starting from 2018 through the 2025 tax year, the maximum total amount of state and local taxes (SALT), including real estate taxes, that can be deducted is $10,000, or $5,000 if married filing separately.
Can I deduct real estate taxes paid on a rental property?
Yes, you can deduct real estate taxes paid on rental properties as long as you meet the necessary requirements and properly report the income and expenses associated with the rental property.
How do I claim real estate tax deductions?
To claim real estate tax deductions, you need to itemize your deductions on Schedule A (Form 1040). Record the amount of real estate taxes paid during the year on the appropriate line for property taxes.
What supporting documentation do I need for real estate tax deductions?
It’s important to keep supporting documentation such as tax bills from your local government, receipts showing the amount of property taxes paid, and statements from escrow accounts if property taxes are paid through your mortgage lender.
Can I deduct real estate taxes on a second home?
Yes, you can deduct real estate taxes on a second home as long as it meets the requirements for deductibility and is considered a qualified residence.
Are there any tax benefits for first-time homebuyers?
While real estate tax deductions are available to all homeowners, first-time homebuyers may also be eligible for additional tax benefits such as mortgage interest deductions and credits for energy-efficient home improvements.
Should I consult a tax professional for real estate tax deductions?
If you have questions or need assistance regarding real estate tax deductions, consulting a tax professional can provide valuable guidance and help ensure that you properly navigate the tax rules and regulations.