How to Claim the Property Tax Deduction

If you’ve been an adult for, like, two seconds, you know how frustrating building wealth (or paying off debt) can be when so much of your paycheck goes to taxes. You buy groceries, you pay a tax. You buy gas, you pay a tax. You buy a home, you guessed it, you pay a tax.

The good news? If you own a home, a car or another Uncle Sam-approved property, you can potentially knock off a hefty sum from your federal income taxes with a property tax deduction. But what exactly is “Uncle Sam-approved” property? And how do you claim property taxes? Let’s find out.

What Is the Property Tax Deduction?

First things first—let’s talk about property taxes.

When you own property—land, a house, a car—you typically have to pay property taxes to your state or local government every year based on the value of your property. These taxes often help fund things like schools, roads, libraries and first responders.

The property tax deduction is basically the IRS’s way of saying, “Hey, look, we get it—you already paid property taxes to your city or state, so go ahead and deduct them from your federal income taxes.”

Sounds nice, right? Well, before you get too excited, there are some ground rules you should be aware of when it comes to property taxes.

Limits to the Property Tax Deduction

There are things that are annoying (like those never-ending, diary-style recipe blogs riddled with ads and weird childhood stories) and then there are government rules around taxes. But we have to know them so here we go:

1. The IRS caps the property tax deduction at $10,000 ($5,000 if you’re married filing separately).¹ You may think, Oh, good, I don’t pay that much for property taxes. But keep in mind, this limit isn’t just for property taxes—it includes state and local income and sales taxes too (otherwise known as the SALT deduction). Basically, in the eyes of the IRS, all state and local taxes are bundled together.

Congress capped the SALT deduction at $10,000 in 2017, but there’s been talk of removing or increasing the limit.²

2. You have to own the property you’re paying taxes on to claim the property tax deduction. Let’s say you’re helping your parents by paying their property taxes (way to go—I love the generosity). Even though you paid the tax, you don’t qualify for the tax deduction because you don’t own the property.

3. Property taxes are deductible in the year they’re paid, not the year they’re assessed. So, if you got your property tax bill in December 2023, and you didn’t pay it until this year—2024—you’d have to wait until 2025 (when you file your 2024 taxes) to deduct those property taxes.

4. If you’re using an escrow account to pay property taxes, don’t deduct the amount you put in escrow. Deduct the amount of taxes you actually pay. Even though you put money aside in an escrow account, you’re not paying property taxes until your lender actually pays the tax, which could be significantly less than what you put aside for the year. Your escrow also usually includes money to pay homeowners insurance, which isn’t deductible. Only deduct what your lender pays out, which you should be able to find on Form 1098.

What Property Is Deductible?

All righty, now that we’ve gotten the rules out of the way, let’s get to the fun stuff. (I know, calling any of this “fun” is a stretch. But we’re talking about taxes here, so I’ll take what I can get.) If you pay property taxes on any of these things, you might could (as we say in the south) deduct them from your federal taxes:

• Your main home
• Vacation home (See? Fun!)
• Land
• Boats (More fun!)
• Cars, RVs and other vehicles

What’s Not Deductible?

You’ve got to take the good with the bad in life. So let’s cover the things you can’t deduct. Here are some of the most common examples:

• Property taxes on property you don’t own (We covered this, remember?)
• Local benefit taxes for improvements like a sidewalk, sewage system or road in your neighborhood (On the bright side, tax on the maintenance or repair of these things is deductible—silver linings, people!)
• Renovations to your home (even if they add value to your property)
• Payments on loans for energy-saving home improvements (Yep—debt still has no benefit.)
• Taxes paid on rental or commercial property
• Cost of utilities and services, such as gas, water, sewer and trash collection
• Property taxes you haven’t paid yet
• Taxes you pay when transferring the sale of a house

When in doubt about what you can or can’t deduct, reach out to a tax pro!

How to Claim Property Tax Deductions

Now, for the part we’ve all been waiting for—how do you claim property taxes on your federal income taxes?

1. Be sure you’re itemizing your deductions. 

It’s tax literature’s most infamous question: To itemize or not to itemize? And if you’re not Hamlet (or an accountant), should you itemize or take the standard deduction? If taking the standard deduction will result in a lower tax bill, don’t waste your time itemizing and claiming property taxes. It takes a bunch of deductions to exceed the standard deduction, which is why most taxpayers use the standard deduction instead of itemizing. 

2. Find tax bills for your property taxes.

This isn’t the time to guesstimate (like when you say, Yeah, I had between one and a dozen cookies). You want to be exact about how much you paid in property taxes for the year. If you have a home mortgage, your mortgage company should provide you with a 1098 Form that states how much property tax you paid. If you cut a check to pay your taxes directly, make sure you have the bill or a bank statement showing how much you paid.

Don’t settle for tax software with hidden fees or agendas. Use one that’s on your side—Ramsey SmartTax.

If you want to find out how much you paid in taxes for your car, you’ll need your vehicle registration form. That’s also the form you’ll need if you get pulled over for speeding or a busted taillight—so put that in a safe place. Also, don’t speed! And get that taillight fixed.

3. List your property taxes on Schedule A.

When you’re itemizing your deductions, list them on Schedule A before including the total on your 1040. Remember that your property taxes are bundled with state and local income and sales taxes, and your total deduction can’t be more than $10,000 (or $5,000 if you’re married and filing separately).

When in Doubt, Contact a Tax Pro

Look, figuring out your property tax deduction can make your head spin faster than it takes one of T. Swift’s re-releases to hit #1—especially when tax percentages vary depending on your county. If you have a relatively simple return and want to try filing on your own, check out Ramsey SmartTax. It’s simple and intuitive, and it’s what I use every April.

But if your stuff’s a little more complex and you feel like you need extra help, reach out to a RamseyTrusted tax professional—they’ll make sure you’re on the right path to getting your taxes done quickly and accurately.