Deduct Property Taxes on Federal Return

By | February 26, 2014

How do you deduct state property tax on a tax return?

The IRS allows you to take a deduction for the property tax payments you make on your home , provided that your local government imposes the tax using a uniform rate that’s based on your home’s value. If you end up paying personal property taxes to your local government, the IRS allows you to claim a deduction for it on your federal tax return. However, the IRS requires you to satisfy certain requirements, regardless of how your government classifies the tax.Although subject to conditions and restrictions, the property tax deduction still affords helpful financial assistance to homeowners, many of whom are subject to property taxes as well as income and sales taxes in their state


Personal property tax is deductible if it is a state or local tax that is:

  • Charged on personal property,
  • Based only on the value of the personal property, and
  • Charged on a yearly basis, even if it is collected more or less than once a year.


Deduct Property Taxes on Federal Return

Following the following guidelines will help determine if you are able to take a property tax deduction on your federal tax return when you file taxes.

  1. The property tax deduction is only available to the people who are legally responsible for making the tax payments, regardless of who actually makes them. Therefore, if you make property tax payments for another taxpayer, you’re not able to claim the deduction.
  2. The property tax deduction you report must only include the tax payments that are actually made during the tax year.  This could be less than the actual tax liability


Property Taxes and Itemized Deductions

Property taxes can only be deducted if a taxpayer itemizes their deductions. The first thing a taxpayer will want to do is compare their itemized deduction to the standard deduction. If the total of your deductible expenses reported on Schedule A, including all property tax payments, is less than the standard deduction for your filing status, you can save more money in tax with the standard deduction rather than itemizing your property taxes.

Report your annual property tax payments on Schedule A if itemizing. The Schedule A has a section entitled “Taxes You Paid” where you should report all property taxes. Once you complete the Schedule A form, you must attach it to your 1040.


Eligible to claim a deduction for property taxes?

If you are eligible to claim a deduction for property taxes, there are additional home-related deductions you should also consider claiming on Schedule A such as mortgage and home equity loan interest and mortgage insurance premiums.

You must use Form 1040 to report your taxes because it is the only form you can use when itemizing deductions.