The property tax deduction is one of many benefits of being a homeowner, but you don’t need to own a house to get this tax break — there are other ways to qualify.
You might be able to deduct property and real estate taxes you pay on your:
- Primary home
- Co-op apartment (see IRS publication 530 for special rules)
- Vacation homes
- Property outside the United States
- Cars, RVs and other vehicles
In 2018, there’s a new limit: You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.
What’s not deductible
The IRS doesn’t allow property tax deductions for:
- Property taxes on property you don’t own
- Property taxes you haven’t paid yet
- Assessments for building streets, sidewalks, or water and sewer systems in your neighborhood. (Assessments or taxes for maintenance or repair of those things are deductible, though.)
- The portion of your tax bill that’s actually for services — water or trash, for example
- Transfer taxes on the sale of house
- Homeowners association assessments
- Payments on loans that finance energy-saving home improvements. (The interest portion of your payment might be deductible as home mortgage interest, though.)
- 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.
How to take the property tax deduction
- Find your tax records. Your local taxing authority can give you a copy of the tax bill for your home. But you should also scrutinize the registration paperwork on your car, RV, boat or other movable assets, says Robert Kirby, a CPA at Munc CPA in Rohnert Park, California. You might be paying property taxes on those, too, and the portion based on the value of the vehicle is likely deductible.
- Exclude the stuff that doesn’t count. You can deduct a property tax only if it’s assessed uniformly at a similar rate for similar property in the community. The proceeds have to help the community, not pay for a special privilege or service for you. “Sometimes there are assessments that are made by the county for improvements. Those actually are not deductible because they are not a tax,” Kirby notes. You might be able to add them to the cost basis of your property instead, though, which could help when you sell, he says.
You don’t need to own a house to get the property tax deduction.
- Use Schedule A when you file your return. That’s where you figure your deduction. Note: This means you’ll need to itemize your taxes instead of taking the standard deduction. It’ll probably take more time to do your taxes if you itemize, but you could end up with a lower tax bill. (Go here for help deciding whether to itemize.)
- Deduct your property taxes in the year you pay them. Sounds simple, but it can be tricky. There are two ways people typically pay property taxes on a house: They write a check once or twice a year when the bill comes, or they set aside money each month in an escrow account when they pay the mortgage. Don’t let the second method fool you — deduct only the taxes actually paid during the year.
“Some people are under the mistaken conclusion that they pay the tax when they give the money to the escrow company. That’s not true,” Kirby warns. “With your mortgage payment, it’s deductible when the mortgage company pays it to the county.”
If you bought or sold your house this year
- If you owned taxable property for part of the year before selling it, you can usually deduct the taxes attributable to the time you owned the property. So, if you sold your house in July, you would deduct the first half of the year’s property taxes on the house, and the buyer would deduct the second half.
- Renters might qualify for a property tax deduction on their state taxes. California’s renter’s credit, for example, gives certain taxpayers a break, Kirby says.
How to get a bigger property tax deduction
- Prepay your property taxes. If your semiannual tax bill is due next April but you pay it early — say, this December — you can deduct it this year instead of next year.
- Save your registration statements. When it’s time to renew your registration on a vehicle, check if any part of the fee is actually property tax. There could be a tax deduction hiding in there.
- Scrutinize your closing paperwork. If you bought or sold a house, go back and look at what you paid at closing for property taxes. It’s easy to overlook, says Richard Smith, an enrolled agent in San Jose, California. Plus, after the tax assessor has a chance to revalue the property, you might get a second tax bill, he adds.