Claiming Property Taxes on Your Tax Return: What You Need to Know

Key Takeaways:

• Tax-Deductibility of Property Taxes: Understanding the tax-deductibility of property taxes can significantly impact financial planning for Texas property owners, particularly regarding tax protests and appeals.
• State and Local Tax Deduction Limits: The Tax Cuts and Jobs Act imposes a $10,000 limit on state and local tax deductions, including property taxes, making careful assessment crucial for taxpayers considering itemizing deductions.
• Texas Tax Protest Expertise: Texas Tax Protest offers insights and assistance for navigating property tax complexities to maximize deductions and optimize financial outcomes.

For Texas property owners, the complexity of property tax laws and the potential for appealing these taxes can be daunting. However, there exists a silver lining in the form of tax deductions. 

At Texas Tax Protest, we’re committed to assisting you in protesting your property taxes and maximizing any tax benefits you might be entitled to. Knowing how to claim property taxes on your tax return can substantially impact your annual financial planning. The tax code offers certain provisions for property owners, and by understanding these rules, you can ensure that you’re not leaving money on the table.

If you’re wondering how to claim property taxes on your tax return, this guide will break down the essentials, including the benefits, eligibility criteria, and the steps to take for maximum savings. Additionally, we’ll explore how services like Texas Tax Protest can assist you in reducing your property tax bill, ensuring you’re not overpaying in the first place.

A Brief Overview: Deducting Property Taxes

Property taxes are levies imposed by local governments to fund essential services such as public education, infrastructure maintenance, and emergency services. These taxes are calculated based on the assessed value of your property and the tax rate set by various taxing entities in your area.

For homeowners, property taxes are often included in monthly mortgage payments through an escrow account, while others may pay them directly to the county tax office. Regardless of how they’re paid, property taxes are deductible on your federal income tax return, offering a way to offset some of the financial burden.

Who Is Eligible?

To be eligible for a property tax deduction, you must be a property owner who has paid property taxes in the tax year for which you are filing. The property taxes must be based on the assessed value of your real property and charged uniformly against all property under the jurisdiction of the taxing authority. Taxes paid for services such as water, sewer, and trash are not deductible as property taxes.

Deduction Limits

The Tax Cuts and Jobs Act of 2017 introduced a limit to the total amount of state and local taxes (SALT), including property taxes, that can be deducted. As of now, the deduction is capped at $10,000 for single filers and married couples filing jointly, $10,000 for single filers and married couples filing jointly, and $5,000 for married individuals filing separately.

This is a significant change from previous years, where there was no cap on the amount you could deduct for property taxes, so be sure to evaluate how this change affects your tax situation.

Claiming The Deduction

To claim the property tax deduction, itemization on your federal income tax return is required. This involves completing Schedule A (Form 1040) and foregoing the standard deduction. Given the SALT deduction cap, it’s crucial to calculate whether itemizing your deductions is the best financial move. Typically, itemizing makes sense when the total of your deductible expenses exceeds the standard deduction amount for your filing status. (Consult with your CPA to determine if a Standard Deduction or Itemized Deduction is best for your tax situation.)

Tax Deductions For Property Taxes

The Internal Revenue Service (IRS) allows taxpayers to deduct certain property taxes as an itemized deduction on Schedule A of Form 1040. Here’s what you need to know:

Eligible Property Taxes

• State and Local Property Taxes: Real estate taxes imposed by state, local, or foreign governments are deductible. This includes taxes on your primary residence, vacation homes, and land you own.
• Taxes Based on Assessed Value: The taxes must be based on the assessed value of your property and levied for the general public welfare.

Non-Deductible Property Taxes

• Special Assessments: Payments for local benefits that increase your property’s value, such as new sidewalks or sewer systems, are not deductible.
• Fees and Charges: Trash collection, water service, and other utility fees are also non-deductible.

Tax Deduction Limitations

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a cap on the total deduction for state and local taxes (SALT), including property taxes. Currently, the SALT deduction is limited to $10,000 ($5,000 if married filing separately). This limitation may affect high-income earners and those in states with high property tax rates.

How To Claim Property Taxes On Your Tax Return

1. Determine Your Eligibility

To claim property taxes, you must itemize your deductions instead of taking the standard deduction. Itemizing is beneficial if the total of your allowable deductions exceeds the standard deduction for your filing status.

2. Gather Documentation

You’ll need accurate records of the property taxes you paid during the tax year. Key documents include:

• Form 1098: If you have a mortgage, your lender will provide this form, detailing the property taxes paid from your escrow account.
• Receipts and Statements: Keep records of any direct payments you made to your local tax authority.

3. Complete Schedule A

Report your property taxes on Schedule A of Form 1040. Include the total amount of deductible property taxes you paid during the year, ensuring it aligns with the IRS’s guidelines.

4. File Your Return

After completing Schedule A, attach it to your Form 1040 and submit your return to the IRS. Double-check your entries to avoid errors that could delay processing or trigger an audit.

Maximizing Your Savings With Property Tax Exemptions

Before claiming property taxes on your return, ensure you’ve taken advantage of any exemptions that reduce your taxable property value. Common exemptions include:

• Homestead Exemption: Reduces the taxable value of your primary residence.
• Over-65 and Disability Exemptions: Provide additional relief for senior citizens and individuals with qualifying disabilities.
• Disabled Veterans Exemption: Offers tax reductions for veterans with service-related disabilities.

In Harris County, for example, these exemptions can significantly lower your annual property tax bill. You must apply through your local appraisal district and provide the necessary documentation to claim them.

The Role Of Texas Tax Protest

Navigating the complexities of property taxes and deductions can be challenging, but Texas Tax Protest is here to help. Specializing in property tax reduction, their services can ensure you’re not overpaying on your taxes, which directly impacts the amount you claim on your tax return.

What Does Texas Tax Protest Offer?

1. Property Tax Protests: Texas Tax Protest handles the entire process of disputing your property’s assessed value, from filing the protest to representing you in hearings before the Appraisal Review Board (ARB).
2. Data-Driven Analysis: Using proprietary technology and market research, we build compelling cases to argue for lower property valuations.
3. Personalized Support: Our team of local experts understands the nuances of Texas property tax laws and provides tailored advice to homeowners.

By securing a lower property tax bill, you’ll not only save money but also adjust the amount you’re eligible to deduct on your federal tax return. And while deductions on your federal tax return offer some relief, proactive management of your property tax obligations is essential for long-term savings. At Texas Tax Protest, we can help ensure you’re not paying more than your fair share, giving you peace of mind and financial flexibility.

Final Thoughts

In understanding how much of your property taxes are tax deductible, it’s clear that careful attention to detail and informed decision-making are crucial. By staying informed about the limitations and requirements set forth by the IRS, you can ensure you’re maximizing your potential deductions and keeping your property expenses as low as possible.

For Texas property owners seeking additional support and strategies to reduce their property tax burden, Texas Tax Protest provides a comprehensive and personalized service. Since 2010, we’ve been dedicated to helping property owners navigate the complexities of the property tax appeal process with our leading-edge technology and personalized assistance. Our commitment is to help you regain control of your property taxes.

Frequently Asked Questions On Claiming Property Taxes on Your Tax Return

What are property taxes and how do they work?

Property taxes are levied by local governments on real estate owned. They are calculated based on the assessed value of your property, including the land and any structures on it. These taxes fund various public services and infrastructure, such as schools, roads, and emergency services.

Can I deduct property taxes on my federal income tax return?

Yes, you can deduct property taxes paid on real estate you own on your federal income tax return. This is considered an itemized deduction, which means it’s deducted from your gross income to determine your taxable income. (Consult with your CPA to determine if a Standard Deduction or Itemized Deduction is best for your tax situation.)

What is the difference between a property tax deduction and a credit?

A property tax deduction reduces your taxable income, potentially lowering your tax bill. A tax credit, on the other hand, is a dollar-for-dollar reduction of the income tax you owe. Essentially, a deduction lowers the amount of income subject to taxes, while a credit directly reduces your tax bill.

How do I know if I’m eligible to claim property taxes on my tax return?

To be eligible to claim property taxes on your tax return, you must itemize your deductions on Schedule A of the IRS Form 1040. This means that the total of your itemized deductions should be more than the standard deduction amount for your filing status to make itemizing beneficial.

What forms do I need to claim property taxes on my tax return?

To claim a deduction for property taxes, you need to file IRS Form 1040 and itemize your deductions on Schedule A. On Schedule A, you’ll list the total amount of property taxes you paid in the year.

Is there a limit to how much property tax I can deduct?

Yes, the Tax Cuts and Jobs Act of 2017 introduced a limit to the total amount of state and local taxes (SALT), including property taxes, that can be deducted. As of now, the deduction is capped at $10,000 for single filers and married couples filing jointly, and $10,000 for single filers and married couples filing jointly, and $10,000 for single filers and married couples filing jointly, and $5,000 for married individuals filing separately.

Can I claim property taxes for multiple properties?

Yes, you can deduct property taxes paid on all owned properties, not just your primary residence. However, the total amount of state and local taxes you can deduct, including property taxes, is still capped at the SALT deduction limit.

What if I pay property taxes through an escrow account?

If your property taxes are paid through an escrow account as part of your mortgage payment, you can still deduct these taxes. However, you can only deduct the amount that was actually paid out of the escrow account to the taxing authority during the year. Your mortgage servicing company will typically send you a Form 1098, which outlines how much in property taxes was paid on your behalf.