Are Property Taxes Deductible? Here’s Who Qualifies
Written by
Rudri Patel
Edited by
Emily Gadd
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If you own a home, you’ve likely seen a property tax bill in the mail. Property taxes are typically paid by owners to the government on real estate like homes, land and commercial properties. These taxes fund public resources like the police, fire departments, public schools, libraries and other community resources.
When it comes time to file your taxes, you may even qualify for a property tax deduction. Here’s how to know if you qualify.
Types of Properties That Are Tax Deductible
You can deduct property taxes for the following properties:
- Primary and secondary residence
- Co-op
- Vacation home
- Land
- Boats, cars, RV’s and other vehicles
How To Claim Property Tax Deductions on Your Tax Return
Claiming a property tax deduction is simple to do. Here’s the step-by-step process:
- Choose itemized deductions. You can only take a property tax deduction if you itemize your tax deduction.
- Gather your property tax records. Collect documentation of property taxes paid. You can find this amount on your property tax bill or mortgage statements.
- Determine deductible and non-deductible amounts. Look at your bill carefully and separate the amount paid for property taxes. This excludes any non-tax fees (like garbage collection, sewer maintenance, or specific local assessments for improvements).
- Check your SALT Deduction cap. Remember you can only deduct up to $10,000 in state or local property, income and sales taxes.
- Complete IRS Schedule A. Find Schedule A on your federal income tax return. Locate the section, “Taxes You Paid,” and enter the total property tax amount under Line 5b – state and local real estate taxes.
- Verify your itemized deduction total. Make sure your itemized deductions are higher than standard deductions.
The SALT Cap: What It Means for Property Tax Deductions
The 2017 Tax Cuts and Jobs Act limits the deduction for state and local taxes, including property, income and sales taxes, to $10,000 per year. If you need to deduct more than $10,000 on your tax return you cannot do so.
In terms of SALT’s cap on property deductions, if you live in a state with a high income tax, you may not be able to deduct all of your property taxes. If you owe $8,000 in state taxes and you have property taxes of $6,000, then the SALT cap will limit your deduction to $10,000 not $14,000.
Property Tax Deductions for Rental Properties
Property taxes on rental properties are deductible, but are handled differently than taxes on a primary or secondary home. Here are the rules for property taxes deductions for rental properties:
- Handled as a business expense. Property tax deductions are not a personal itemized deduction, but as a business expense.
- Report on Schedule E. This form allows you to list rental income and expenses. You can deduct expenses from property taxes, mortgage interest, repairs and other miscellaneous costs associated with the rental property.
- Make sure you prorate the right amount. If you use the property for personal and business use, deduct only the days the property was used for business purposes.
- SALT deduction cap doesn’t apply. The full amount of property taxes can be deducted as a business expense. You aren’t limited by the SALT cap.
- Include other rental expenses. You can also deduct insurance, utilities, property management fees and depreciation, to offset rental income.
The Bottom Line
Your primary and secondary home can qualify for property tax deductions on your personal taxes if you don’t rent them out. Rental homes can only qualify for property tax deductions on business taxes. Make sure to separate out any fees that don’t qualify for the deduction.
When in doubt, hiring a professional tax advisor can help you get the most deductions and help you report all of the income you’re legally required to report.
FAQ
- Can I deduct property taxes for my rental property?
- Yes, property taxes on rental property can be deducted as a business expense Schedule E.
- Are property taxes on a second home deductible?
- Yes, property taxes on a second home are deductible. However, they count toward the SALT cap and apply to deductions on primary and second homes.
- What happens if I don't deduct property taxes correctly?
- Not deducting property taxes correctly means a possibility of IRS penalties, interest charges and loss of deductions.
- Can I deduct property taxes if I take the standard deduction?
- No, you must itemize your deductions.
- Can I deduct property taxes on land or vehicles?
- Yes.
- What happens if I exceed the $10,000 SALT cap?
- You won't be able to deduct more than $10,000.
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- IRS. 2024. "Topic no. 503, Deductible taxes."
