What Is the Property Tax Deduction and How do I Claim It?

When you own property, such as a car, a house, or land, you have to pay annual property taxes to your state or local government, depending on the value of your property. However, you may be able to claim a property tax deduction from your federal income tax bill. 

This article will bring you an overview of the property tax deduction and how to claim it. 

What is the property tax deduction?

Property taxes are paid on property owned by an individual or other legal entity (such as an LLC or a corporation) to the state and local tax authority of the property’s jurisdiction. These taxes are generally used to fund public services such as schools, roadways, libraries, and first responders.

Property taxes are virtually always levied on several types of property, and each state, county, and municipality sets the taxable value for each item.

Common examples of property taxes are mortgage interest, state and municipal taxes on property investments such as homes, land, or apartments, and taxes collected on personal property such as boats or vehicles.

What is deductible

The IRS accepts the following items as property tax deductions: 

  • Your primary house
  • Houses for vacationing
  • Apartment in a cooperative (see IRS Publication 530 for special rules)
  • Land
  • Cars, boats, RVs, and other types of vehicles

What is non-deductible

Certain items on your real estate property tax bill may look like taxes but are actually miscellaneous charges and are not deductible. These are the following: 

  • Taxes on properties you don’t own
  • Property taxes you haven’t paid yet
  • Transfer taxes when you sell your properties
  • Expenses for public services, such as water or garbage collection.
  • Renovation expenses to your home (even if they add value to your property)
  • Payments on loans for energy-efficient house upgrades. (However, you may be able to deduct the interest component of your payment as home mortgage interest.)
  • Property taxes plus government and county tax payments or state taxes totaling over $10,000 ($5,000 for married filing status).
  • Local benefit taxes for constructing streets, walkways, or sanitary sewer infrastructure in your neighborhood. (However, taxes on the maintenance or repair of these items are deductible)

FYI: You can deduct your maintenance and repair expenses; however, only if the tax authority itemizes these amounts in your bill.

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How to claim your property tax deduction

Store your tax documents properly 

If you pay taxes on your properties, you may be able to deduct this sum from your income tax. However, you need to be extra accurate when estimating your property taxes for the year. A simple practice to achieve your goal of claiming a property tax deduction is to keep a copy of your property documentation. 

For example, though your local taxing authority can give you a copy of your property taxable income, you should also keep the licensing documentation for your car, boat, or other mobile assets. If you have a home mortgage, require a 1098 Form from your mortgage company to state how much property tax you paid. And lastly, if you pay your taxes with a check, make sure you keep the bank statement showing how much you paid.

Use Schedule A to file your property taxes

Schedule A is used by the IRS to file taxes on a federal income tax filing. In this file, you should specifically categorize your deductions for property taxes. This form itself is where taxpayers keep track of their write-offs and any property taxes they want to deduct. Filers can also deduct expenses of monthly mortgage interest they paid throughout the tax year using this form.

Subtract your property taxes in the year you pay them. 

This may sound simple, but don’t let it fool you. Property taxes are normally paid in one of two ways: by writing a check once or twice a year when the bill arrives or by setting away money each month in an escrow account while paying the mortgage. Don’t rely on the second way; you should only deduct the taxes you paid during the year.

The bottom line

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How to Claim Your Moving Expenses Tax Deduction in 2022

At some point in your life, you may need to relocate for work, and we all know that moving is expensive. Though the Tax Cuts and Jobs Act (TCJA) has eliminated the moving expense deductions for most taxpayers, you can still claim a certain deduction for relocating, storage, and travel expenses.

Here’s all you need to know about the moving expenses tax deduction, its requirements, and how to claim this deduction in 2022. 

What is the moving expenses tax deduction?

According to the IRS’s definition, moving expenses are costs incurred by a taxpayer related to relocating for work or being transferred to a new location. Moving expenses are considered adjustments to income. So, you can deduct these expenses even if you don’t itemize your deductions.

The moving expenses tax deduction covers the reasonable costs of moving your personal belongings and household items to the new location, such as:

  • The expenses for yourself and other members of your household to travel to the new location
  • The cost of oil, gasoline, parking fees, and highway tolls when traveling to the new location with your personal vehicle
  • Airline and train tickets costs
  • You can even deduct the cost of renting a storage unit for up to 30 days if you cannot move into your new house immediately after leaving your former house.

The Tax Cuts and Jobs Act of 2017 abolished the deduction of moving expenses for tax years 2018 through 2025, except for members of the military on active duty who relocate due to a military order. If you’re a member of the US army, you can file Form 3903 to claim moving expenses as federal income tax deductions. 

However, you can still claim your moving expenses deduction if your move is work-related and passes the time and distance tests.

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What are the requirements for claiming your moving expenses tax deduction?

To be qualified for the moving expenses tax deduction, you must pass one of these tests:

Distance test 

The moving expenses tax deduction does not apply to costs incurred for relocation within the same town. Your new job must be at least 50 miles away from your old home. If your previous commute was five miles one way, the distance between your new job location and your old home must be at least 55 miles. The IRS requires you to employ the shortest commutable paths between two places when determining whether you meet the distance requirement.

Time test 

You must work as a full-time employee for a minimum period of 39 weeks during the initial 12-month period starting on the day you arrive in the new location. You can still meet this requirement even if the 39 weeks are not consecutive and you work for different employers. The IRS does not specify how many days or hours you must work per week to be considered a full-time employee; instead, it depends on your industry’s commonly-accepted standard.

How to claim your moving expenses tax deduction in 2022

Moving expenses are one of the few tax deductions that you can claim before knowing if you meet the requirements. Because of the 12-month time limit, most taxpayers will not be able to pass the time test until the next tax year. However, the IRS allows taxpayers to claim the moving expenses tax deduction in the year that they relocate.

To claim the deduction, you must list all of your relocation expenses on Form 3903 and attach it to your personal tax return for the year in which you relocated. If you didn’t meet all requirements by the end of the 12-month period, you must reverse the deduction. You can either file the original deduction amount in “other income” on your next tax return or modify the original form to exclude the moving expenses tax deduction from the tax calculation.

The bottom line

We understand that moving is expensive. However, with a good understanding of the state moving expense deductions that you’re still eligible for, you can make the best out of your deductions, and use allowed strategies to lower your taxes.

If you’d like to discover more helpful tax-related knowledge, don’t forget to subscribe to the Shoeboxed blog

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

Two Of The Most Commonly Cited Corporate Income Tax Issues

Are you running a corporation? Would you be interested in knowing more about the top corporate income tax issues – the double taxation and in-deductible interest! 

We’ve done some research and combined all the information needed on this topic for you in this article! 

What is corporate income tax? 

According to Investopedia, a corporate tax is defined as “a tax on the profits of a corporation. The taxes are paid on a company’s taxable income, which includes revenue minus cost of goods sold (COGS), general and administrative (G&A) expenses, selling and marketing, research and development, depreciation, and other operating costs.” 

In other words, the federal and state governments levy a corporate income tax (CIT) on business profits.

The two most common corporate income tax issues 

Issue 1 – Corporate income is double taxed 

Corporate income is subject to double taxation. 

For instance, company A has an income of $20 million. Let’s assume that the tax rate is 40% on all income. Company A has to pay income tax at the corporate level. Hence, Company A needs to pay $8 million ($20 million x 40%). In other words, the corporate income tax is $8 million. 

Company A pays the income tax to the government and leaves the rest of the twelve million dollars to the company’s shareholders. If the remaining profits are paid out as dividends, the $12 million will be taxed again at the individual shareholder level. For simplicity, we can assume that the tax rate to pay for their share is 40%. So, $3.2 million is the amount of income tax that shareholders pay at the individual level. 

Thus, the total tax paid on the $20 million income is $11.2 million. Some people may say this tax amount is quite substantial. Hence, the question is, how can Company A increase the amount of deductible taxes? 

Corporate A’s shareholders can avoid double taxation by having the corporate profits retained in the business for expansion. 

Issue 2 – Interest is deductible as a business expense for a corporation

Interest is a tax-deductible expense for all businesses, sole proprietorships, partnerships, and corporations. However, this tax deductibility has unique applications for corporations. 

Governments allow companies to deduct interest as a tax-deductible expense. Nevertheless, dividends paid by corporations are not deductible. Hence, if a corporation wants to raise new capital for expansions, it should borrow money and pay interest. Afterward, the corporation will get the interest deducted as a business expense. 

In other words, the tax codes encourage companies to raise capital by borrowing money rather than getting additional money from their shareholders. 

In the next follow-up articles, we’ll cover how to avoid the two tax income issues mentioned above. Subscribe to our newsletter to receive the latest update! 

Read more on tax and tax deduction articles on the Shoeboxed blog

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Stay audit-ready with Shoeboxed for FREE now!