1.28- What are Real Estate Taxes and how are they claimed?

Deductible real estate taxes are generally any state or local taxes on real property levied for the general public welfare. The charge must be uniform against all real property in the jurisdiction at a like rate.

There are popular loan programs that finance energy saving improvements through government-approved programs. You sign up for a home energy system loan and use the proceeds to make energy improvements to your home. In some programs, the loan is secured by a lien on your home and appears as a special assessment or special tax on your real estate property tax bill over the period of the loan. The payments on these loans may appear to be deductible real estate taxes; however, they're not deductible real estate taxes. Assessments or taxes associated with a specific improvement benefitting one home aren't deductible. However, the interest portion of your payment may be deductible as home mortgage interest. Refer to Publication 936, Home Mortgage Interest Deduction and Can I Deduct My Mortgage-Related Expenses? to see whether you might qualify for a home mortgage interest expense deduction.

Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks, and sewer lines. You can't deduct these taxes. However, you can increase the cost basis of your property by the amount of the assessment. Refer to Publication 551, Basis of Assets for more information. Local benefits taxes are deductible only if they're for maintenance, repair, or interest charges related to those benefits. See Taxes for local benefits in Chapter 11 of Publication 17.

If a portion of your monthly mortgage payment goes into an escrow account, and periodically the lender pays your real estate taxes out of the account to the local government, don't deduct the amount paid into the escrow account. Only deduct the amount actually paid out of the escrow account during the year to the taxing authority.

State and Local Personal Property Taxes

Deductible personal property taxes are those based only on the value of personal property such as a boat or car. The tax must be charged to you on a yearly basis, even if it's collected more than once a year or less than once a year.

Some taxes and fees you can't deduct on Schedule A include federal income taxes, social security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner's association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection. Refer to the Instructions for Schedule A (Form 1040) and Publication 17 for more taxes you can't deduct.

Overall Limit

As an individual, your deduction of state and local income, sales, and property taxes is limited to a combined total deduction of $10,000 ($5,000 if married filing separately). You may be subject to a limit on some of your other itemized deductions also. Please refer to the Instructions for Schedule A (Form 1040) and Topic No. 501 for the limitations.

Additional Information

For more information on nonbusiness deductions for taxes, refer to Publication 17 and Can I Deduct Personal Taxes That I Pay as an Itemized Deduction on Schedule A?