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 provides an overview of property tax the property tax deduction and how to claim it. 

What is property tax?

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.

Find out how property taxes are calculated in this quick video.

What is deductible as a property tax deduction?

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 as a property tax deduction?

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

Step 1. 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, get 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.

Step 3. 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.

Step 4. Subtract your property taxes in the year you pay them. 

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.

The bottom line

Calculating your property tax deduction can be challenging, especially when tax percentages differ depending on your county. But by keeping these guidelines in hand, you can easily get the most out of your qualified property tax deduction, lower your taxes, and even be able to invest your money in other areas. 

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