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

The Benefits of Paying Property Taxes

Property taxes are charged by your local government based on the value of your property. As the value of your property increases, your tax responsibility also raises (although you have the right to protest property taxes if you believe they are too high). In some areas, property taxes are also called real estate taxes. Property taxes fund a wide range of services that are provided by local governments such as road maintenance and education.

While property taxes are important, they can also pose a big problem for those who aren’t careful. Often, mortgage lenders will include your property taxes in the monthly mortgage payment. The bank will place these funds in an escrow account and pay the property taxes when they are due. Some lenders do not provide this service and you will have to pay the taxes on your own. No matter how the taxes are paid, they are deductible off your Federal taxes as an itemized deduction. Tax consulting firms such as can help individuals in making all the right decisions.

Paying your taxes through an escrow account has advantages and disadvantages. While you have the convenience of only making one payment, you run the risk of the lender not forwarding sufficient payment to the government. Also, if you don’t properly pay your mortgage, this can cause a delinquency and put your property at risk of being lost to property tax debt. If a tax lien is placed against your property it can also make it difficult to sell later. Property tax liens often “run with the land,” meaning that no matter who incurred the tax debt, the current owner is responsible.

Great care should be taken when buying a home, in order to avoid being liable for someone else’s tax debt. While most lenders and insurers will conduct a title search on a home to verify that there are no defects, you should also do one before closing. If there is a perfected lien on your property, most states will hold you responsible for what is in the title record whether you knew it or not. However, property tax liens can be paid as part of the closing costs during a property sale. When the property is sold, money from the sale can sometimes be used to pay off outstanding liens.

In the event that you do become delinquent in paying property taxes, there are several avenues that the government can take. Often, a notice will be sent to you and the lender. The lender will sometimes pay the required amount and demand repayment. In other cases, your property may be seized and sold to relieve the debt. To avoid this, make sure your taxes are paid in full or be prepared to hire a property tax lawyer. (This site is a great resource for finding property tax experts) It will benefit you in more ways than one.