How Much of Property Taxes Are Tax-Deductible?

While property taxes can feel like a financial burden, the property tax deduction allows property owners the opportunity to write off those tax payments during tax season. However, it’s important to know how property taxes work, what’s deductible, and how much you can claim when you file your tax return.

What Is the Property Tax Deduction?

State and local property taxes paid on real estate and personal property may be tax-deductible if the taxpayer itemizes personal deductions on their federal income taxes. This includes annual property taxes paid on the assessed value of your property as well as taxes paid at closing during the sale or purchase of real estate property.

Property owners can claim a tax deduction on some or all of their paid property taxes if they use the property for personal use and itemize deductions on their federal tax return. This makes sense if the sum of all eligible itemized expenses is greater than the standard deduction.

The Tax Cuts and Jobs Act (TCJA) capped the property tax deduction in 2018. The deduction for state and local taxes, including property taxes, is capped at $10,000 (or $5,000 if married filing separately). Before TCJA, there was no cap on the property tax deduction.

This cap is also a combination of taxes, not just property taxes. The cap also includes state and local income and sales tax (also known as the SALT limit).

What’s Tax-Deductible?

Here are some things you may be able to deduct:

• Primary home
• Vacation home
• Land
• Foreign property
• Vehicles 
• Boats

What’s Not Tax-Deductible?

Here’s what you may not be able to deduct:

• Tax paid on property that you don’t own
• Tax paid on commercial or rental property
• Taxes you haven’t yet paid
• Taxes paid on transferring the sale of a house
• Home renovations
• Loans on energy-efficient upgrades
• Local improvement construction
• Utilities or services like trash collection or water
• More than $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes
• Homeowners association assessments

What If I Pay Property Taxes Through an Escrow Account?

If you pay property taxes through an escrow account, you’ll receive a 1098 statement from your lender. The statement will typically provide a breakdown of the property tax payments made on your behalf. Generally, only the amount the lender reports to the IRS on Form 1098 qualified for the deduction.

How to Claim the Property Tax Deduction

Here’s how you can claim the property tax deduction on your tax return:

• Itemize your deductions: If taking the standard deduction results in a lower tax bill, then don’t waste your time claiming property taxes. You can only claim the property tax deduction if you choose to itemize.
• Gather tax bills: If you paid property taxes yourself, gather bank statements or go to your city tax assessor’s website and search for your property tax records. If you paid through an escrow account, you should receive a 1098 statement from your lender.
• Use Schedule A to file: If you’re itemizing your deductions, list them in Schedule A which you’ll then attach to your 1040.