Understanding whether you can deduct property taxes on your tax return is crucial for effective financial planning. Property tax deductions can reduce taxable income and ease the costs of homeownership.
Key Requirements
To qualify for property tax deductions, you must meet IRS criteria. The IRS allows deductions for state and local real estate taxes that are based on property value, levied for the general public welfare, and uniformly imposed at a like rate within the community.1Internal Revenue Service. Publication 530 (2024), Tax Information for Homeowners
The state and local tax (SALT) deduction limit for 2025 is $40,000 ($20,000 if married filing separately), and begins to phase out for taxpayers with modified AGI above $500,000 ($250,000 if married filing separately).2Internal Revenue Service. How To Update Withholding To Account for Tax Law Changes for 2025
Taxpayers must itemize deductions on Schedule A of Form 1040 to claim property tax deductions. For 2025, the standard deduction is $15,750 for single filers and married individuals filing separately, $31,500 for married couples filing jointly, and $23,625 for heads of household.3Internal Revenue Service. Internal Revenue Bulletin 2025-45
Eligible Taxes
Eligible property taxes include state and local real estate taxes based on assessed property value and used for public services like schools and infrastructure. Taxes for local benefits that increase property value, such as new sidewalks or sewer lines, aren’t deductible but are typically added to your home’s cost basis for when you sell.
Personal property taxes (for example, part of a vehicle registration that’s based solely on the vehicle’s value and charged yearly) may be deductible, but they count toward your overall SALT limit.
Real estate taxes on foreign property generally aren’t deductible on Schedule A for personal use.
State and Local Tax Deduction Rule
The SALT deduction allows taxpayers to deduct certain state and local taxes on federal returns but is limited by the 2025 cap noted above. This cap covers the combined total of state and local income (or general sales) taxes and property taxes. Whether to itemize depends on whether your total itemized deductions, including SALT, exceed your standard deduction.
Documentation and Records
Proper documentation is essential for claiming property tax deductions. Homeowners should retain property tax bills, payment receipts, and any correspondence with taxing authorities. Records of adjustments or appeals, including evidence of payment agreements, should also be kept to substantiate deductions.
How to Claim on Tax Returns
To claim property tax deductions, taxpayers must use Schedule A on IRS Form 1040 for itemized deductions.4Internal Revenue Service. Instructions for Schedule A (Form 1040) Gather all relevant documents, including property tax bills and proof of payment, to report the deductible amount. Ensure the total deduction does not exceed the applicable SALT limit. Consulting a tax professional is advisable for complex situations or if you own multiple properties.
Property taxes are generally deductible in the year you pay them; however, prepayments are deductible only if the tax was assessed for that year under state or local law. Timing payments strategically can help manage cash flow and tax liability. Prepaying property taxes might offer benefits, but it’s important to consider potential changes in tax laws or your financial situation. Staying proactive and informed about tax planning is key.