After FICA, Medicare, the IRS and the state take their share at tax time, you'll also get hit with local property taxes if you own real property such as a house or land. But you can at least get a little tax relief by deducting your eligible county property taxes when you file your federal income tax return.
Eligible Property Taxes
Different counties might include a number of different taxes on a piece of land or property, and some of them don't qualify as a federal income tax deduction. The only real property taxes that are deductible are those that are imposed on you, are based solely on the assessed value of the property, are charged at a uniform rate for all property in the jurisdiction and are for the benefit of the general public.
Local Benefit Taxes
You can't deduct any county land or property taxes that benefit you specifically. For example, your county might charge you a local benefits tax to pay for road repairs on your street, or to install sewer lines in your community. Since this tax benefits you and your neighbors, rather than the general public, it is not a deductible tax for federal income tax purposes.
Identifying Deductible Taxes
Your county tax assessor should provide you with a property tax bill each year, detailing how your property taxes are determined. Your bill typically includes your property's assessed value, the tax rate applied and the total property tax due. It should also include a section detailing any special assessments, levies or local benefits taxes. Only the tax that results from multiplying the assessed value of your property by the tax rate is deductible. Local benefits taxes, levies and assessments are not tax deductible, even if the resulting project ends up benefiting the community as well as you.
You can only deduct real property taxes that you actually paid to the taxing authority. If you have a mortgage on your home, chances are your real estate taxes are included in your monthly house payment. Your mortgage lender takes that portion of your payment and puts it into an escrow account, where it remains until your property taxes are due. You mortgage lender then pays your real property taxes on your behalf. You can't deduct the money you paid to your mortgage company, since that money wasn't paid to the taxing authority. You can only deduct the amount that the mortgage company actually paid to the county.
Claim your real property tax deduction on Line 6 of Schedule A, Form 1040. You can only take a tax deduction for real property taxes that you actually paid. If someone else, such as a relative, paid your real estate taxes for you, you can't take a tax deduction for that amount. Neither can the person who paid the taxes, since the taxes were not imposed on them.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.