When it comes to your taxes, every little bit helps. You can deduct both eligible real estate taxes and personal property taxes on your return, but each tax must meet certain criteria to qualify. In addition, as long as the property taxes are due, the taxes are deductible in the year they are paid. So, if you plan on itemizing in one year, but not the next, paying two years of property taxes in the same year could save you even more.
Depending upon your specific financial circumstances, it may be in your best interest to deduct two years worth of property taxes in a single year. However, keep in mind that there are limitations on the amount that can be deducted on an annual basis.
When to Deduct Property Taxes
You must write off property taxes in the year that the taxes are actually paid. In addition, the taxes must actually be levied on you. For example, if you receive a tax bill on December 1, 2017 that is due by January 31, 2018, you can deduct it in 2017 if you pay it prior to the end of the year. If you pay it in January 2018, you deduct it on your 2018 tax return.
Eligible Personal Property Taxes
You can deduct both state and local personal property taxes such as taxes on an automobile or boat. To be eligible, the tax must be charged to you on an annual basis, though it can be paid more or less frequently. For example, if you receive your annual tax notice in December and you have the option to pay it in December or January, it’s still a qualifying personal property tax. In addition, the taxes must be based on the value of the property. For example, if the state charges all car owners a $50 registration fee no matter what kind of car you own, that’s not a deductible tax.
Eligible Real Estate Taxes
You can deduct state, local and even foreign real estate taxes on your federal income taxes. To qualify, the real estate tax must be charged uniformly against all real property in the area for the general public welfare. If you pay your real estate taxes through an escrow account, you can deduct the amount paid out of the escrow account during the year for real estate taxes. Real estate costs that you can’t deduct include fees for services like garbage pickup or water lines, transfer or stamp taxes, homeowner’s association fees or rent increases due to increased real estate taxes.
Limitations on Your Deductions
To claim property taxes on your tax return, you must itemize your deductions, which means giving up your standard deduction. The standard deduction varies depending on your filing status, and all the standard deductions increased substantially from 2017 to 2018. For singles, the deduction increased from $6,300 to $12,000. For heads of household, it increased from $9,300 to $18,000. For couples filing jointly, the standard deduction increased from $12,300 to $24,000 in 2018. In addition, the deduction for all of your state and local taxes is limited to $10,000 total. So, if you are already deducting $10,000 of state and local income taxes, you can’t deduct any additional state and local property taxes.
- IRS: Publication 17
- IRS: Topic 503 – Deductible Taxes
- Legal Information Institute: 26 USC 164
- The Tax Foundation: 2018 Tax Brackets
- IRS: Itemize or Choose the Standard Deduction
- Internal Revenue Service (IRS). "Publication 530 (2018), Tax Information for Homeowners." Accessed Jan. 14, 2020.
- Internal Revenue Service (IRS). "Topic No. 503 Deductible Taxes." Accessed Jan. 14, 2020.
- Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2019." Accessed Jan. 14, 2020.
- Internal Revenue Service (IRS). "Topic No. 556 Alternative Minimum Tax." Accessed Jan. 14, 2020.
- Internal Revenue Service. "IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 If Assessed and Paid in 2017." Accessed Jan. 14, 2020.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."