US taxpayers who file returns with the Internal Revenue Service (IRS) on personal property and real estate may find ways to deduct them from the amount due in federal income tax. In this article, you will discover how to claim property taxes when filing income tax returns.
Can You Claim Your Property Taxes on Income Tax? – A Pro-Level Assessment
Whenever you may live in the United States, state and local authorities charge property taxes based on the value of the houses located within their jurisdiction. It is not uncanny to find locations where personal property is subject to local taxes.
Fortunately, there are several possibilities to claim tax deductions when filing with IRS. To claim the deduction, the taxpayer must itemize the claimable deductions using IRS Form 1040 on Schedule A.
Personal Property Tax Deduction
Every local district has its regulations on which type of property is subject to tax and how taxpayers must determine the taxable value of their assets. For example, some counties require you to use the fair market value of the real property as the taxable value.
Depending on the state, city, or county where the property is located, the owner may also pay taxes on tools and other assets used to produce income.
Homeowners can deduct local property taxes on their main residence and any other real property owned by them when filing with IRS. The tax returns must include an itemized list of the deductible taxes starting from the date that the property was purchased.
Generally, the closing statement signed by both parties lists the sale date considered for tax purposes. Please note that if the new property owner signed an agreement to pay the property’s delinquent taxes from an earlier year at closing, it is not possible to deduct them from IRS.
In this type of arrangement, the amount due is treated as part of the cost to buy the home and is not subject to tax deduction. Since 2018, IRS has fixed the total amount of deductible local taxes at $10,000 per year.
Non-Deductible Charges
It is fundamental to identify real property-related miscellaneous charges that are not deductible, including basic service delivery fees (e.g., water, trash collection, etc.), flat fees to fulfill fines non-compliant with local laws, and assessment for local benefits (e.g., charge to construct a sidewalk outside the property).
While costs associated with repairs and maintenance can be deducted from the federal tax returns, these costs must be itemized on the tax bill filed with IRS.
Escrow Account Payment vs. Tax Deduction
Many property owners pay part of the mortgage through monthly deposits made into an escrow account. In such cases, these payments are not subject to tax deduction, as only the amount paid by the bank or lender to the tax authority is deductible.
If you check IRS Form 1098, it is possible to find the report on the amount paid by the bank or lender. Every year, the amount paid through the escrow account is adjusted not to exceed the amount due, but the amount rarely is the same.
Do You Want to Claim Property Taxes on Your Income Tax? – Immediately Consult with an Expert CPA
You can perfectly save a significant amount of money in property taxes while ensuring full tax compliance with IRS. Call Edward D. Quilca, CPA at (786) 310-5582 or email [email protected] to find the best tax-saving strategy for your case.
