Property tax deduction

The property tax deduction isn’t only limited to homeowners. Taxpayers owning land or vehicles could qualify for as long as they meet certain requirements. Here’s everything you need to know.

What is the property tax deduction?

The property tax deduction is a federal deduction that allows taxpayers to write off any state or local property taxes they owe, up to a certain amount.

The chart below shows what is and isn’t deductible under the property tax deduction:

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How much is the property tax deduction worth in 2019?

The combined total of your local, state and property taxes can’t be more than the limits in the chart below:

Limits

Before 2018, you could write off 100% of your state, local, and property taxes. So if you pay $7,000 in state income taxes and $6,000 in property taxes, you could take a $13,000 deduction. But now you’re capped at $10,000 or $5,000 depending on your filing status.

How much was the property tax deduction worth in previous years?

The chart below outlines the property tax deductions for the past three years.

Who qualifies for the property tax deduction?

Anyone who pays local or state personal property taxes on a house, land or vehicle can claim this deduction as long as they meet these three rules as defined by Treasury Regulations:

1. The tax is ad valorem
2. The tax is imposed annually
3. The tax is imposed on personal property

How to claim the property tax deduction

You use Schedule A to itemize your taxes and claim the property tax deduction. The process looks like this:

1. Gather any financial documents that list fees for your home, land or vehicle.
2. On line 5 of Schedule A, list your state and local taxes for income, real estate and property.
3. Add up the total amount of taxes.

You can only claim up to $5,000 if you’re married and filing separately or $10,000 if you’re single, the head of the household or married and filing jointly.

What to watch out for

If you want to claim the property tax deduction, keep these potential drawbacks in mind:

• Some fees aren’t deductible. Sometimes property taxes include service fees and assessments, but these aren’t deductible.
• Get credit in the year you paid them. You get to write off property taxes in the year you paid them, not in the year they were issued. So, if you pay next year’s taxes by December of this year, you can go ahead and write them off.
• You’ll have to itemize. You can’t claim the property tax deduction if you take the standard deduction.

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Related tax credits or deductions

You may be able to reduce your tax bill even further if you qualify for these related deductions:

• Mortgage interest deduction. You may be eligible to write off 100% of your mortgage interest if your loan is less than $1 million.
• Mortgage points deduction. If you bought your house this year, you may be eligible to write off any money you paid for discounted points or origination fees.

Bottom line

The property tax deduction helps many taxpayers lower their tax bills — not just homeowners. You can claim up to $10,000 or $5,000 if you’re married and filing separately of your local, state and property taxes.

If you’re wondering whether it makes financial sense to claim the property tax deduction, consider hiring a professional or comparing online services that can calculate both your standard and itemized deductions, then tell you which saves you the most money.

Frequently asked questions

• Can I deduct vehicle registration fees?

  The only part of your vehicle registration fee that’s tax deductible is the part that’s based on the value of your vehicle. For example, if your car is worth $20,000 and your state charges a $1.50 fee for every $1,000 of value, you could deduct $30 from your taxes (20 x $1.50).

  Each state calculates vehicle registration fees in its own way, so it may be hard to calculate how much you can deduct.

• Can I deduct property taxes on a home I sold?

  Yes. When you sell a home, you and the buyer pay your own share of property taxes, so you can deduct the portion you paid.

• Are property taxes paid through escrow tax deductible?

  Yes, but you can only deduct the actual amount that went to paying your taxes this year. So, if you paid $3,000 in escrow but your property taxes were only $2,500, then you’ll deduct the $2,500.