Federal law affords taxpayers the ability to deduct real estate taxes from federal income taxes. In order for a tax to be deductible for federal income tax purposes, the tax must be a state, local or foreign real estate taxes that are imposed equally on all property found within the jurisdiction. The amount of the tax is determined by the value of the property. Individual taxpayers must itemize their deductions in order to deduct state, local and foreign real estate taxes paid during the tax year and they will file on Schedule A of Form 1040 and estates deduct the same on Schedule K.
Deducting Real Estate Taxes on Form 1040
Fill out the information required on Form 1040. You will enter your name, address, and Social Security number as well as filing status and exemptions. You will insert the information relating to your income earned as well as going though the adjustments to determine your adjusted gross income.
Deduct from your adjusted gross income your itemized deductions, which will be inserted in the aggregate on line 40 of Form 1040.
Insert the requested information on Schedule A, which includes other deductions aside from the real estate tax deduction.
Include your real estate taxes paid on line 6 of Schedule A.
Finish filling out Schedule A to determine the aggregate amount of your itemized deductions, which will then be included on line 40 of Form 1040.
File Schedule A with your income tax filing and include any substantiation required, such as tax statements received from your state, local or foreign government that verify the amount of real estate taxes paid.
Deducting Real Estate Taxes on Form 706
Fill out Form 706, which includes Part 1 (information about the decedent and executor), Part 2( the tax computation), Part 3 (elections by the executor) and Part 4 (general information).
Fill out Schedule K in order to get the number you will insert on item number 14 of Part 5 – recapitulation.
Determine the amount of real estate taxes that had accrued prior to the date of the decedent’s death as the deduction is limited to those taxes that accrued during the decedent’s lifetime.
Fill out Schedule K – Debts of the Decedent, and Mortgages and Liens in order to calculate the aggregate deduction for line 14 of Part 5 on Form 706. For real estate taxes, you will need to list the state, local or foreign authority that assessed taxes prior to the decedent’s death. You will also need to list the amount that is unpaid and the amount that will be deducted.
Insert the aggregate number from Schedule K on line 14 of Part 5 of Form 706. File Schedule K with Form 706 and include any substantiation to verify the amount of taxes paid by the estate.
For taxpayers filing Form 1040, if you received a refund of any real estate taxes paid during the tax year for which you are filing income taxes, you must reduce your real estate tax deduction by that amount. If, however, the refund is for a prior year, you will not be required to reduce your deduction by this amount. You must include the amount of the refund on line 21 of Form 1040.
- For taxpayers filing Form 1040, if you received a refund of any real estate taxes paid during the tax year for which you are filing income taxes, you must reduce your real estate tax deduction by that amount. If, however, the refund is for a prior year, you will not be required to reduce your deduction by this amount. You must include the amount of the refund on line 21 of Form 1040.
Kay Lee began freelance writing for Answerbag and eHow in 2010. She is an attorney in Washington, DC, practicing since 2006. Lee specializes in employee benefits and executive compensation. She holds a Juris Doctor from the Columbus School of Law and a Master of Laws from Georgetown University Law Center.