The Comprehensive Guide to Claiming Property Taxes on Your Tax Return

Greetings from You 1st Realty – Unity, Colorado’s premier real estate company! Today we’re going to discuss your options for deducting property taxes for this coming tax season. Maybe you’re thinking about buying a house or you just want to get your finances straightened up and keep YOUR money in your pocket, either way, this is the perfect read for you.

Understanding Property Taxes and Your Tax Return

Property taxes are a significant expense for homeowners in the United States. As a taxpayer, it's essential to know how to claim property taxes on your tax return to maximize your potential deductions and reduce your overall tax liability.

This comprehensive guide covers everything you need to know about claiming property taxes on your tax return, including the State and Local Tax (SALT) deduction, itemized vs. standard deductions, and how to calculate the property tax deduction limit.

The Significance of the SALT Deduction

The State and Local Tax (SALT) deduction is a crucial component when claiming property taxes on your tax return. This deduction allows taxpayers to reduce their taxable income by deducting eligible state and local taxes, including property taxes, income taxes, and sales taxes.

It's important to note that the SALT deduction has a cap of $10,000 ($5,000 if married filing separately) due to the Tax Cuts and Jobs Act (TCJA) of 2017. This cap remains in effect through the 2025 tax year, unless Congress takes action to change it.

Deducting Property Taxes: Itemized Deductions vs. Standard Deduction

When claiming property taxes on your tax return, you must choose between taking the standard deduction or itemizing your deductions. You should choose the option that provides the highest overall tax benefit.

• Standard Deduction: This deduction is a fixed amount that reduces your taxable income, based on your filing status. The standard deduction amounts are adjusted annually for inflation.
• Itemized Deductions: This method allows you to list and deduct specific expenses from your taxable income, including property taxes, mortgage interest, charitable donations, and medical expenses.

To determine the best option, calculate your total itemized deductions and compare that to the standard deduction amount for your filing status. If your itemized deductions exceed the standard deduction, it's generally more beneficial to itemize.

How to Claim Property Taxes on Schedule A

To claim property taxes as an itemized deduction, you'll need to complete Schedule A, Itemized Deductions, and attach it to your Form 1040 or 1040-SR. Here are the steps to claim property taxes on Schedule A:

1. Collect your property tax records for the tax year.
2. Enter the total amount of property taxes paid on Line 5b of Schedule A.
3. Complete the remaining sections of Schedule A, as applicable.
4. Add up the total itemized deductions and enter the amount on Line 17 of Schedule A.
5. Transfer the total itemized deductions amount to Line 12 of your Form

1040 or 1040-SR, replacing the standard deduction amount.

By following these steps, you can accurately report your property taxes and other itemized deductions on your tax return.

Calculating the Property Tax Deduction Limit

As mentioned earlier, the SALT deduction is capped at $10,000 ($5,000 if married filing separately) per tax year. This limit includes property taxes, state and local income taxes, and sales taxes. To calculate the property tax deduction limit, consider the following example:

1. Property taxes paid during the tax year: $8,000
2. State income taxes paid during the tax year: $4,000
3. Total SALT deduction: $12,000

Since the total SALT deduction exceeds the $10,000 cap, you would only be able to claim a maximum of $10,000 as your SALT deduction. If married filing separately, the limit would be $5,000.

Additional Considerations When Claiming Property Taxes

Keep these additional points in mind when claiming property taxes on your tax return:

• Only Real Estate Property Taxes Are Deductible: Personal property taxes, such as those on cars or boats, are not deductible.
• Taxes Must Be Paid and Assessed: You can only deduct property taxes that have been both paid and assessed during the tax year. Prepaying future years' taxes or claiming delinquent taxes from prior years is not allowed.
• No Double-Dipping: Ensure you don't claim the same property tax payment as both an itemized deduction and a business expense if you use your property for business purposes.
• Foreign Property Taxes: The SALT deduction does not apply to foreign property taxes. You cannot claim property taxes paid on a foreign property on your U.S. tax return.

By understanding the nuances of claiming property taxes on your tax return, you can make informed decisions that maximize your deductions and minimize your tax liability. Always consult with a tax professional for personalized advice tailored to your unique financial situation.