Homeownership comes with many financial advantages. The ability to take a property tax deduction is one of those advantages. But this deduction only makes sense to taxpayers in select situations. Let’s explore how property tax deductions work and if this option makes sense for your finances.
The property tax deduction, sometimes called the real estate tax deduction, allows eligible homeowners to deduct their local property taxes from their federal income taxes.
You’re allowed to deduct your property taxes each year. The 2017 Tax Cuts and Jobs Act capped the state and local tax (SALT) deduction at $10,000, which applies to singles, heads of household and married couples filing jointly. But if you are married and filing separately, the deduction is capped at $5,000.
In addition to capping property tax deductions, the 2017 Tax Cuts and Jobs Act increased the standard deduction. As a taxpayer, you can choose to take the standard deduction or itemize your deductions. If you decide to itemize your deductions, your property taxes might be one deductible you include in the itemization.
The taxes you pay as the owner of the following properties may qualify as deductions on your federal taxes:
Not every type of property tax you pay will qualify as a deduction. Below are some of the types of taxes that don’t qualify as a deduction:
You have questions about property tax deductions. We have answers.
Property tax exemptions are portions of a full tax amount that taxpayers don’t have to pay. Some state and local governments offer exemptions to reduce or forgo the amount of taxes paid by some residents, usually on the basis of age, disability, military service or residency requirements. To see if your municipality offers an exemption and whether you qualify, check your local government’s website.
Property insurance, like your homeowners insurance policy, is generally not tax deductible. But if you own a rental property, property insurance could be tax deductible.
If you recently sold or bought a home, you are able to deduct the amount of property taxes you paid for the year. Since the total property tax bill for the year is divided between the buyer and seller, you can only deduct what you paid during the tax year.
The 2017 tax law modified many rules, but it still allows at least a partial property tax deduction. Whether it makes sense for you to take it depends on your individual situation, but many homeowners will find that the standard deduction more than makes up for the cap on the deduction.
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