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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, yep, 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 get into it and 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

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. Even though you paid the tax, you don’t qualify 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 2021, and you didn’t pay it until this year—2022—you’d have to wait until 2023 (when you file your 2022 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. If you pay property taxes on any of these things, you can potentially deduct them from your federal taxes:

  • Your main home
  • Vacation home
  • Land
  • Boats
  • Cars, RVs and other vehicles

What’s Not Deductible?

Aw, man—there’s stuff we can’t deduct? Unfortunately, yes. Here are some of the most common examples:

  • Property taxes on property you don’t own
  • Local benefit taxes for improvements such as a sidewalk, sewage system or road in your neighborhood (on the bright side, tax on the maintenance or repair of these things is deductible)
  • 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 (gasp!)
  • 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, let’s get to 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. 

Yes, it’s the age-old question: 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. For 2022, the standard deduction is $25,900 if you’re married filing jointly. It takes a bunch of deductions to exceed the standard deduction, and that’s 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 how much you paid in property taxes for the year. You want to be super accurate. 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. You’ll also need that form if you get pulled over for going 40 mph in a school zone, so don’t lose it!

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 definitely make your head spin, 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.

If you feel like you need extra help, reach out to a tax Endorsed Local Provider (ELP)—they’re RamseyTrusted and will make sure you’re on the right path to getting your taxes done quickly and accurately.

Find a tax pro today!

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Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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