Question

Explain real estate deductions

Answer 1

Real estate taxes on property are deducable in the year you pay them. Ex: You received a bill in January 2016, but you prepaid it in December 2015. This means you’ll deduct the amount on your 2015 return.

Your mortgage lender might pay your real estate taxes from an escrow account. If so, they’ll send you Form 1098. This form will report any real estate taxes you paid. You should receive your 1098 by Jan. 31, 2016. If you don’t, contact your mortgage lender.

Statements from the Department of Housing and Urban Development (HUD) also report real estate and property taxes. You’ll receive a HUD statement when you buy or sell property. The statement lists the taxes paid by both the buyer and seller.

If your condo association charges you a special fee, you can’t deduct it as real estate tax. These fees are considered condo fees. However, you can deduct any amount of your fee that covers property taxes. If the condo association sends you a statement, it should tell you the amount of property tax the fees covered.

Personal property taxes

You can deduct the tax you pay on personal property — like cars and boats. Personal property tax — also called an excise tax — is based on the value of the item.

To deduct property taxes, all of these must apply:

• The tax is imposed on personal property.
• The tax must be ad valorem. This means it’s mostly in proportion to the value of the personal property.
• The tax is imposed on an annual basis, even if collected more or less than once per year.

Claim these as itemized deductions on Schedule A:

• Real estate taxes (Line 6)
• Personal property taxes (Line 7)

Deductible property (real estate) taxes include taxes paid at closing when buying or selling a home, as well as taxes paid to your county or town’s tax assessor (either directly or through a mortgage escrow account) on the assessed value of your property.

Important: This tax is part of a combination of several taxes where the aggregate deduction is capped at certain limit for the sum of these taxes:

1. Property taxes (real estate taxes + personal property taxes)
2. State and local income tax, OR Sales tax
3. Special above limit is present in case of married couples

Deduct property (real estate) taxes for your:

• Main home
• Vacation homes
• Land

You can't deduct it for:

• Property you don’t own
• Rental property or business property (claim it as an expense, not a deduction)
• Local improvements, like streets or sidewalks
• Trash collection, library taxes, or anything else not directly related to property value
• Foreign property (this is a change from 2017 due to tax reform; you won’t be able to deduct foreign property taxes on returns for 2018 – 2025).

Deducting Prior Year or Future Year Property Taxes
you can deduct prior year or future year property taxes during the year you make the actual payment – in certain situations. More info

Some more important info:

• If you pay your property tax with your mortgage, you can only deduct it after your lender has paid the tax on your behalf. You can contact your lender to find out when they typically make these payments. (For example a lender might make the payment in October to cover the total amount of the following year’s taxes; or they might make quarterly payments. It depends on the taxing authority in your location.)
• Co-op members: Only claim your share of the amount paid by the corporation
• Multiple owners: Split the deduction by what each person paid
• School taxes are deductible only if they are based on the assessed value of your property