Are Real Estate Taxes Deductible?: A Simple Guide

Real estate taxes, are often called “property taxes. These are local taxes that cities and counties charge to pay for public services and improve infrastructure.

These taxes are based on how much your land is worth and are calculated annually or every six months. They are a big part of making sure that important services in the community, like:

  • Schools
  • Fire Departments
  • Law Enforcement
  • Road Maintenance
  • And More

So they can continue operating.

Real estate taxes can be deducted from your taxes.

Yes, real estate taxes are usually tax deductible.

However, there are a few things to think about:

1. List of items:

To get a tax break for real estate taxes, you have to list your deductions on your federal tax return.

When you itemize, instead of taking the standard deduction, you list all of your eligible costs, such as real estate taxes. Figure out if your personal deductions add up to more than the standard deduction. This will tell you if it’s worth it to itemize.

2. Who owns it?

Only people who own the building can deduct real estate taxes.

You can’t take a tax break for property taxes if you rent. This benefit is open to both people who own their own homes and people who own rental properties.

3. The TCJA puts limits on and makes changes to:

When it was passed in 2017, the Tax Cuts and Jobs Act (TCJA) made big changes to the tax code.

One of the most important changes was putting a limit on how much you can claim in state and local taxes (SALT). Which includes property taxes. As of September 2021, the SALT deduction was limited to $10,000 per tax return for single filers and married people filing separately. The limit was $10,000 per person for married people who filed together.

This limit on SALT deductions hurt many homeowners, especially in states with high taxes. They no longer could deduct all of their property taxes if their overall SALT deductions went over the cap.

4. Differences between a main home and a second home:

Most of the time, you can deduct all of the real estate taxes on your main home, up to the SALT deduction cap.

But if you own a second home or vacation home, you can still deduct the property taxes on that property as long as it’s not considered a rental property. But these deductions are also counted toward the limit on SALT payments.

5. Having the right paperwork:

To get the real estate tax deduction, you must keep correct records of how much you paid in property taxes.

Your local government or tax office should send you a bill or other paperwork every year that shows how much you paid in property taxes. Keep these papers somewhere safe, because you’ll need them when you file your tax return.

How to Get the Tax Break

Follow these steps to get a tax break for real estate taxes:

1. Get proof:

Gather all of your property tax records, such as receipts, yearly statements, or anything else that shows how much you paid in property taxes.

2. List each deduction:

You must use Schedule A (Form 1040) to list all of your expenses on your federal tax return. Put the total amount you paid in real estate taxes in the right box.

3. File Your Return:

Include itemized deductions, like the real estate tax credit, on your tax return if they give you a bigger tax break than the standard deduction.

Wrap It Up

Real estate taxes can be a big cost for people who own their own homes or other properties. To get the most out of your tax situation, you need to know the rules and limits of real estate tax benefits.

Most of the time, you can deduct these taxes, but the TCJA put a limit on how much you can deduct for SALT. This makes the process more complicated. So, it’s best to talk to a qualified tax expert or use tax software to make sure you’re claiming your deductions correctly based on your unique financial situation. By doing this, you can get the most out of the tax deductions you can use and possibly lower your total tax bill while keeping your real estate investments.

Keep in mind that tax laws can change, so it’s important to know what the latest rules are if you want to plan your taxes well.

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