Can I Claim Property Tax on My Federal Return?

by Mark Kennan, Demand Media
    Your property-tax deduction might save you money on your income tax return.

    Your property-tax deduction might save you money on your income tax return.

    Property taxes can add up fast, especially if you have to pay them on multiple items like your house, car and boat. Luckily for you, Uncle Sam provides some relief and lets you claim a tax deduction for qualifying property taxes. However, you can only take advantage of the deduction if you itemize.

    Allowed Property Taxes

    You can usually write off both your personal property taxes and real estate taxes. Personal property taxes are deductible if charged by state or local governments. Real estate taxes can be deductible if you pay them to a state, local or even foreign government. To be deductible, the tax has to be based on the value of the property and assessed at least yearly. For example, if your state charges you an annual car fee of $50 plus 0.5 percent of your car's value and your total bill is $110, you could deduct only $60 because that's the portion that's based on your car's value.

    Charges for Services or Improvements

    You can't deduct any costs that you pay for services, such as water or trash, or improvements even if you pay them to the same governing body with the same check. For example, if your $1,000 property tax bill includes $50 for trash collection and $30 for water use, you could only deduct $920 as property taxes. Similarly, if $40 of your property taxes go toward maintaining sewers and sidewalks, that also isn't deductible.

    Deductible in Year Paid

    Regardless of which year's property tax you're paying, you deduct the property taxes in the year that you pay them, not the year they were due. In addition, use the year the money actually goes to the taxing authority. A common disconnect is property taxes you pay through your mortgage lender with an escrow account. Instead of deducting the money in the year that you put the money in the escrow account, you must wait until the year it is paid from the escrow account to the taxing authority.

    Claiming the Deduction

    Both the personal property tax and real estate tax write-offs can only be claimed if you itemize and forgo the standard deduction. To itemize, use Schedule A and Form 1040. On Schedule A, report your personal property taxes, like your car or boat taxes, on line 6. On line 7, report your real estate taxes, like the taxes on your main home. These will be combined with your other deductions and subtracted from your taxable income.

    About the Author

    Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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