Are Property Taxes Deductible?

Property taxes are a very important source of revenue for local governments. Amenities such as public transportation, education, and infrastructure are often the beneficiaries of the money collected from property taxes. Since property taxes are collected at a state and local level, the Internal Revenue Service is not responsible for collecting it. In order to avoid double taxation, the IRS does not tax money that individuals pay toward local property taxes. For example, if a person earns $44,000 in a year, and pays $4,000 in property taxes, then the IRS only taxes the person for $40,000 because their additional wages were already used for taxes.

When reducing taxable income on a tax return, a property owner has two options. They can either take the standard deduction offered by the IRS, or make an itemized deduction for the actual amount of property taxes paid. Most will choose the option that will reduce their taxable income the most. This is typically found in the itemized deduction.

Also, when filing your itemized property tax deductions, always keep in mind that many governments require property tax payments to be made more than once each year. So, if you made two payments of $2,000 during a single year, you can deduct $4,000 from your taxable income. Many property owners forget, and only claim one of the payments, resulting in more taxable income and a greater Federal tax responsibility.

Other than deducting property taxes that were paid, you can also deduct a loss if you sold your property for less than what you paid. Typically, you can only deduct a loss of $3,000 on a single return. However, you can use any remaining loss as a capital loss carryover and use it in subsequent years. Other property value depreciation can also be used as a deduction if applicable.

There are many rules and regulations governing tax deductions and the filing of Federal income taxes. For more specific information, and to avoid making critical mistakes, carefully review the many IRS publications available or seek the assistance of a professional property tax consulting service such as