As a homeowner, paying property taxes can feel like a hefty financial burden, but homeownership comes with tax benefits, too. One is the option to write off those tax payments when it’s time to file with the Internal Revenue Service (IRS).
You can write off property taxes and potentially save a significant amount of money every year. It’s important to know what and how much you can claim, how the property tax deduction (also referred to as real estate tax deduction) compares to the standard deduction and how to actually claim the deduction when tax season comes around.
Let’s take a closer look so you can decide if the property tax deduction is the best financial move for you.
The property tax deduction allows you as a homeowner to write off state and local taxes you paid on your property from your federal income taxes. This includes your annual property taxes on the assessed value of your house as well as the taxes you may have paid at closing during the sale or purchase of the property.
Keep in mind that taxes on items like home renovations or local services listed on your tax bill, e.g., trash collection, aren’t deductible.
Here’s a basic list of property taxes that are eligible as deductions:
Not every property tax payment is deductible. Here’s a rundown of some items you won’t be able to deduct:
You can claim the property tax deduction only if you previously bought a home or property and choose to itemize your tax return. If you claim the standard deduction, you’re not eligible to claim your property taxes.
It’s up to you to decide which option makes the most sense financially. Depending on your personal tax situation, the standard deduction could be more than what you would save with itemized deductions, so be sure to do the math and choose wisely.
The total amount you can deduct depends on changes to the Tax Cuts and Jobs Act, passed at the end of 2017. It affects both itemized and standard deductions.
The Tax Cuts and Jobs Act capped the deduction for state and local taxes at $10,000 ($5,000 if you’re married filing separately). This cap is on a combination of taxes – not just property taxes. It also includes state and local income taxes and sales taxes (aka the SALT deduction), so you’ll likely exceed that capped amount quickly.
This means that if the amount of taxes you’ve paid out over the course of the year exceeds these amounts, you won’t be able to claim the full amount of your property taxes.
While the Tax Cuts and Jobs Act capped the deduction for property taxes, it also nearly doubled the amount of the standard deduction. It should be noted that standard deduction amounts are indexed annually for inflation, so they’re continually rising.
If you determine that the sum of all your itemized expenses is greater than the standard deduction allowed for the year, you’re ready to move forward with the property tax deduction.
Before you get started, there are a few things you’ll need to do.
Yes, you’ve already weeded through your list to determine which deductions you can take and which you can’t, but it’s worth a second look. The last thing you want is to complicate your tax filing with incorrect information. Or worse, realize once you’re done that you would have saved more with the standard deduction.
Your property tax bills are usually sent to you twice a year by the government, but if you don’t have a copy of them handy, reach out to your local tax authority. This information is critical so you can know exactly what you paid in a given year and what you’ll deduct from the next year.
Remember, you can only deduct taxes for the year they were paid.
If your property tax payments are made through an escrow account, you’ll get a 1098 statement from your lender. The statement will likely show the amount of deductible mortgage interest you paid for the year, but it will also break down property tax payments the lender has made on your behalf.
Again, you’ll deduct only the taxes paid out in the tax year at hand.
Once you’ve confirmed your deductions and have the right paperwork to document the taxes you paid, you’ll need to complete the IRS Schedule A form to claim the property tax deduction.
With the caps placed by the Tax Cuts and Jobs Act, taxpayers might find that saving more on property tax deductions can be tricky. If you haven’t met the deduction cap, there are a few options you can explore with your tax attorney, including:
It’s easy to get tunnel vision regarding your home when itemizing your property taxes. Don’t forget that other property such as boats, cars or other real estate you own might also qualify for your property tax deduction.
Prepaying your property taxes is another money-saving option. Though tax rates can change based on legislation, a tax professional can provide you with a tax estimate. If you haven’t reached the maximum deduction for a particular year, prepaying your property taxes for the next year might save you money.
If you’ve already reached the capped amount for your property tax deduction, that doesn’t necessarily mean there aren’t other ways to save money on your income taxes. Consider looking into some of these options:
This federal credit might save you up to $500 if you made updates to your primary residence. Solar upgrades, more efficient boilers or heat pumps and even the addition of small wind turbines may qualify for the credit.
Many states (like California and Massachusetts) have tax credits or exemptions for lower-income individuals who own property, general home improvements made for health and safety, energy efficient upgrades and more. It’s worth looking into any state credits that could add up to big tax savings.
Homeownership comes with a number of financial decisions, and tax time may bring up a new round of questions about whether you should write off your property taxes.
Regarding property taxes, it’s important to make sure the property you’re claiming is tax deductible. Also, be aware of any recent changes to tax laws to claim the correct properties on your tax forms and decide whether the standard or itemized deduction is right for your situation.
To continue saving money on expenses related to your home, consider refinancing with Rocket Mortgage ® .
Victoria Araj is a Team Leader for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 19+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.
Home Buying - 5-MINUTE READ
Sarah Sharkey - Sep 6, 2024
If you own your own home, you might be able to save on your tax returns. Get the most value from your home with these seven tax deductions.
Home Buying - 6-MINUTE READ
Victoria Araj - Feb 2, 2024
Property tax exemptions help qualifying property owners by reducing or eliminating their property tax bill. Learn who qualifies for these exemptions and more.
Home Buying - 6-MINUTE READ
Victoria Araj - Mar 12, 2024
Homeowners can’t deduct homeowners insurance from income taxes, unless it’s a rental property. Learn more about which homeownership expenses are tax deductible.
Buy a home, refinance or manage your mortgage online with America's largest mortgage lender*.
Get a personal loan to consolidate debt, renovate your home and more.
Save more, spend less, see everything, and take back control of your financial life.
Get a real estate agent handpicked for you and search the latest home listings.
Rocket Mortgage has won more awards than any other brand in the J.D. Power U.S. Mortgage Servicer Satisfaction Studies between 2002 – 2024. Visit JDPower.com/Awards for more information.
*Based on Rocket Mortgage data in comparison to public data records.
Rocket Mortgage, 1050 Woodward Ave., Detroit, MI 48226-1906
NMLS #3030. Go here for the Rocket Mortgage NMLS consumer access page.
©2000-2024 Rocket Mortgage, LLC. All rights reserved. Lending services provided by Rocket Mortgage, LLC, a subsidiary of Rocket Companies, Inc. (NYSE: RKT).
Rocket Mortgage, LLC, Rocket Homes Real Estate LLC, and RockLoans Marketplace LLC (doing business as Rocket Loans®) are separate operating subsidiaries of Rocket Companies, Inc. (NYSE: RKT). Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation and applicable legal and regulatory requirements.
Apple and the Apple logo are trademarks of Apple Inc. registered in the U.S. and other countries. App Store is a service mark of Apple Inc.
Wear OS by Google and Google Play are trademarks of Google LLC.