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If you are still working on filing your taxes and are wondering how much of your property taxes are tax deductible, you are in the right place. We are going to share how real estate taxes are deductible and up to how much you can deduct.
Keep reading to learn the ins and outs of property taxes
Are Property Taxes Deductible?
The short answer is yes. You can deduct real estate taxes on your federal income tax return but there are limits and certain things that you have to itemize first. In December 2017 the Tax Cuts and Jobs Act changed the rules for property tax sections.
In order to claim the tax deduction, you have to be the property owner. For example, if you pay your parent’s property taxes because they can no longer afford it, you can not under the law write their property taxes as your deductible if the property is in their name.
Also, if you have spent money to buy or improve commercial property you have the right to deduct capital allowances. If you are wondering what are capital allowances, they allow commercial property owners to claim certain items as a tax deduction and can add up to be a valuable tax relief when tax season comes around.
How Much of Your Property Taxes Are Tax Deductible?
First, you will have to itemize in order to take the tax deduction. The total that your itemized deductions comes out to has to be more than the standard deduction that you are entitled to. If it’s lower then you are better off claiming the standard deduction to avoid your tax bill being higher.
Most households benefit from the standard deduction instead of itemizing because the Tax Cut and Job Act almost doubled the standard deduction amount. For 2019 the standard deduction for a head of household is $18,350. For a single person, it is $12,200, for a married couple it is $24,400, and for married filing separately it is $12,200.
You have the right to deduct up to $10,000 of property taxes that are combined or $5,000 when married and filing separately. You can choose either income taxes or sales taxes but not both.
What Is Deductible?
If you pay taxes on a primary home, land, co-op apartment, vacation homes, cars, RVs, boats, and property outside the United States, you might be able to deduct property and real estate taxes.
If you do not own the property you can’t take advantage of property tax deductions. If you have not paid the taxes yet, you can’t take advantage of the deduction either. Any transfer taxes on the sale of a house you can’t deduct as property taxes nor any homeowners association assessments.
You also can’t deduct more than $10,000 total when it comes to property taxes or more than $5000 if you are married filing separately.
Taking the Deduction
In order to take this deduction, you will need a copy of the tax bill for your home. If you lost it you can ask your local taxing authority for a copy. You will want to check the paperwork on your RV, car, boat, and any other movable asset because you might be paying property tax and not be aware.
If you find that you are paying property taxes on those then more than likely this is also deductible. You will use Schedule A when you file your return. This is where you will figure out your deduction amount.
Keep in mind that using a schedule A will take longer because like we mentioned earlier this involves itemizing everything instead of taking the standard deduction. If you are not sure if it is worth it or not you can try both ways if you are doing your taxes yourself.
Fill out your taxes with the standard educational and fill them out with itemized items to see which one leaves you with a lower tax bill. Make sure that you only deduct the taxes for what you paid that year. If you are setting money aside in an escrow account to pay your taxes make sure to only deduct the taxes that you paid during the year.
Getting a Bigger Deduction
If you want to get a bigger property tax deduction there are certain things you can do. You can opt to prepay your property taxes. If your semiannual tax bill is due the following year you can choose to pay early instead of next year. This will allow you to deduct those taxes for the year that you pay them.
You want to read over all of your closing paperwork. If you bought a home or sold one take a look to see what you paid at closing for the property taxes. This is something that is easily missed but that can be deducted.
When you renew your vehicle or RV registrations double check your fees to see if any of them are being charged as property taxes. If they are these fees are deductible.
Feeling Like a Property Tax Pro?
Now that you know how much of your property taxes are tax deductible you can talk to your accountant right away to make sure you are taking advantage of this deductible. If you are doing your own taxes make sure that you do not miss out on this tax relief.
Navigating the tax world can seem confusing and overwhelming. If you are not familiar with all the tax laws and accounting, hiring a professional might be best for you.
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