Real estate taxes, often referred to as property taxes, are a significant expense for homeowners. But did you know that you can often deduct these taxes on your federal tax return? This comprehensive guide will delve into the details of how you can potentially save money on your taxes by deducting real estate taxes.
Understanding Real Estate Taxes
Real estate taxes are levied by state and local governments based on the assessed value of your property. These taxes are used to fund essential public services such as schools, roads, and emergency services. For example, if you own a home in California with an assessed value of $500,000, your annual property tax could be around $6,000, given the state’s average property tax rate of about 1.2%.
Deducting Real Estate Taxes on Your Federal Tax Return
Yes, you can usually deduct your real estate (property) taxes when filing your federal tax return. However, there are some limitations:
- Only itemizers benefit: If you take the standard deduction instead of itemizing your deductions, you cannot claim a deduction for real estate or any other specific tax. For instance, in 2023, the standard deduction is $12,550 for single filers and $25,100 for married couples filing jointly. If your itemized deductions, including real estate taxes, exceed these amounts, it would be beneficial to itemize.
- Limited to $10k: Congress capped state and local tax deductions at $10k ($5k for married individuals filing separately) as part of the Tax Cuts and Jobs Act of 2017. This means if your combined state and local taxes, including property taxes, exceed $10,000, you can only deduct up to that amount.
- Foreign Property Not Allowed: Foreign property owners do not qualify for this type of deduction. This means if you own a vacation home in, say, Canada, you cannot deduct the property taxes you pay on that home on your U.S. tax return.
How to Claim Your Real Estate Tax Deduction
To claim your real estate tax deduction, you need to follow these steps:
- Find the amount of money paid in real estate or property taxes over the year. This information can typically be found on your county’s tax assessor’s website or on your mortgage statement if your taxes are escrowed.
- When filing out Schedule A form (Form 1040), report these expenses under Line 6b if you’re using TurboTax.
- Alternatively note the amount claimed in additional information section.
- Then report either Standard Deductions (For people who don’t Itemize), Or include all calculations with Schedule A as part of a total sum.
Types of Properties That Qualify for a Tax Deduction
You may generally deduct property taxes on any property that you own and use for personal or business purposes, such as your primary residence, vacation home, commercial buildings, or rental properties. For example, if you own a rental property in addition to your primary residence, you can deduct the property taxes for both properties, as long as the total deduction does not exceed the $10,000 limit.
Limitations on the Deduction Amount
There is now an annual limit on how much state and local tax (SALT) one can include in itemized deductions. The maximum deductible amount was reduced to $10,000 ($5,000 if married filing separately), which applies to both income and real estate taxes combined. This limitation has been a point of contention and is something to keep an eye on in future tax years.
Documentation for Claiming a Deduction
If you pay your real estate property taxes through escrow payments with your mortgage company then it will provide Form 1098 reflecting the amounts paid by December 31st of each year. Alternatively, if they are not included in your escrow payment then contact your county office where the real estate subject to taxation is located.
By understanding the guidelines outlined in this article and adhering to high editorial standards, homeowners can better understand how they can benefit from deducting real estate taxes on their federal tax return.
FAQs
**H3: What types of real estate property taxes are deductible for tax year 2024?**
Answer: For tax year 2024, real estate property owners can deduct both state and local property taxes up to a combined total of $10,000 ($5,000 for married filing separately). Additionally, property taxes on mortgaged real estate can be included in the home mortgage interest deduction, with no overall limit.
**H3: How can I effectively document my real estate property tax deductions for tax year 2024?**
Answer: Proper documentation includes keeping records of paid property tax receipts, proof of assessment, and a copy of your property tax payment check or bank statement. It’s also recommended to retain documents that detail the total amount of property taxes paid throughout the year.
**H3: What other potential tax deductions are related to real estate property for tax year 2024?**
Answer: Some common additional real estate tax deductions include mortgage interest, points paid to obtain a mortgage, property and casualty insurance premiums, property repairs and improvements, and estate taxes paid on the transfer of property. Consulting with a tax advisor or the IRS Publication 530 (Tax Information for Property and Casualty Insurance and Certain Business Income and Expenses) may be helpful for further information