Allowable deductions on your federal income tax return include state, local or foreign real estate taxes. Whether you are a single or married homeowner, the real estate taxes you pay must meet certain IRS requirements to qualify as a deductible expense. If your spouse is the sole legal owner of the home, you can claim the deduction only if the two of you file a joint tax return.
Real Estate Taxes a Deductible Expense
You must own the home in order to claim real estate taxes you pay as a deduction on your federal income tax return. You must also pay the taxes during the tax year for the expense to qualify as a tax deduction. The taxes must be based on your home’s assessed value and levied uniformly on all properties in your local taxing jurisdiction. If a portion of your mortgage payment goes into an escrow account for your mortgage lender to pay the real estate taxes when they come due, deduct only the dollar amount the lender paid the local taxing authority. Even if you paid more money into the account, you can’t take more of a deduction than the total taxes you paid for the year.
Non-Deductible Real Estate Taxes
Homeowner’s association fees or charges for public services such as water, sewer and trash collection may not be included with real estate taxes . Special assessments that your county or state government levies to improve streets, sidewalks, curbs or a sewer line don’t count either. Your municipality may call it a tax, but in the eyes of the IRS, you can’t apply the expense if the money is slated to make improvements. Instead, you can use the amount of the assessment to increase the cost basis of your property as these types of improvements add value to your home.
Where to Deduct Taxes
You must itemize deductions to claim expenses related to home ownership. Deduct real estate taxes you pay on your home on Form 1040 Schedule A. If you choose to claim the standard deduction for your filing status rather than itemizing, you can’t deduct the taxes. Likewise, if the total of your itemized deductions is less than the standard deduction you can take, you won’t be able to use the real estate taxes on your home as a tax-deductible expense.
If you use a part of your home solely to conduct your business, you can deduct a percentage of the real estate taxes you pay on the property as a business expense. You must use that part of your home as your principal place of business or meet with customers or clients there on a regular basis for it to qualify as a home-based business. Figure out what percentage of your home’s total square footage you use for your business. Once you do the calculations, take that percentage of the taxes you pay on your house as a home office business deduction on Schedule C.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.