If you own a home, you can get a break on your income taxes at both the state and federal level. You can deduct the amount of your property tax on your federal tax return, and the 41 states that have income taxes allow you to deduct property taxes. Think of property taxes and income taxes as two ends of a see-saw -- when one goes up, the other tends to go down.
Lower State Income Tax
In the 41 states that have income tax, that tax rate is set with your property tax rate in mind. For example, when lawmakers want to reach a specific revenue figure, they count the revenue they'll get from property taxes, and adjust the state income tax rate to provide the additional revenue they'll need. In other words, in these states your income taxes could be higher if there were no property taxes.
Federal Income Tax Savings
You can deduct property taxes from your taxable income on your federal tax return regardless of which state you live in. This provides additional savings by reducing your tax burden to the IRS. Enter your real estate taxes on line 6 of Schedule A and attach it to your Form 1040. For example, if your taxable income is $60,000 and your property taxes came to $3,000, you would only pay taxes on $57,000 worth of income.
Property Tax Relief
All 50 states have property tax relief programs. These include freezes that lock in your property value when you get to a certain age. Other states allow you to defer taxes until the homeowner dies. These programs are for retirees -- retirees are defined as anyone who is claiming Social Security benefits, no matter what their age. However, getting property tax relief could actually increase your income taxes, because you lose the tax deduction you get when you write off property taxes. You can calculate whether it would be less expensive to pay your property taxes or accept the relief.
Fifteen states have municipalities that charge income taxes. According to the Retirement Living Information Center, local governments get most of their money from taxes on land and buildings. This reduces the need for city income taxes in municipalities in 35 states. For example, Cheyenne, Wyo., has no income tax.
- Kiplinger: A State-to-State Guide to Taxes on Retirees
- Center on Budget and Policy Priorities: Without A State Income Tax, Other Taxes Are Higher
- Retirement Living Information Center: Taxes by State
- Kiplinger: Retiree Tax Map-Florida
- Kiplinger: Retiree Tax Map-Wyoming
- Retirement Living Information Center: Taxes by State-Oregon
- IRS: Publication 530-Main Content
- IRS: Schedule A
- PriorTax.com: What States Have No State Income Tax?
- U.S. Census Bureau. "Local Governments in Northeast More Reliant on Property Taxes than South and West." Accessed Nov. 26, 2019.
- Organisation for Economic Co-operation and Development. "Tax on Property." Accessed Nov. 26, 2019.
- Internal Revenue Service. "1.14.4 Personal Property Management." Accessed Nov. 26, 2019.
- Tax Foundation. "States Should Continue to Reform Taxes on Tangible Personal Property." Accessed Dec. 18, 2019.
- Tax Foundation. "Testimony before the House Ways and Means Select Revenue Measures Subcommittee." Accessed Dec. 18, 2019.
- Internal Revenue Service. "With New SALT Limit, IRS Explains Tax Treatment of State and Local Tax Refunds." Accessed Dec. 18, 2019.
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.