If you’re a personal or real property owner, you can take advantage of tax deductions to save money. Here’s everything you need to know about property taxes and property tax deductions.

What is a property tax?

Property owners pay tax on real estate and certain types of property. Usually, it is calculated by a local government where the property is located. While the rules differ from area to area, the tax is based on the value of the property.

In most cases, tax is levied on real property, such as land and buildings. However, some local governments also tax tangible personal property, such as cars and boats. These local laws often differ from state to state. If you move a lot, you should specifically pay attention to this fact.

Property tax vs. Real estate tax

People often conflate these terms or use them interchangeably. However, there’s a big difference between these two taxes.

Real estate taxes only cover real property such as land, buildings, and rental property. Meanwhile, property taxes also include tangible personal property such as cars, planes, and boats.

What’s deductible and what’s not

You can deduct up to $10,000 in state and local sales, property, and income taxes unless you’re filing separately. In that case, you’re limited to a $5,000 deduction.

If you’ve paid taxes on the following properties, you may be able to deduct them from your federal income tax bill:

On the other hand, you can’t deduct property taxes for the following items:

  • Residential services such as water deliveries or trash collection
  • Flat fines
  • Sidewalk repair and construction assessment
  • Unpaid property taxes
  • Taxes on property you don’t own

A few tips when taking a property tax deduction

Here are a few things that you should keep in mind when taking a property tax deduction.

  • Make sure that all the paperwork is in order. Collect everything you might need and get the copies ready. You’ll need information about all your properties: your home, your car, even your RV.
  • Report expenses on Schedule A. Use Schedule A when filing your return. Make sure you itemize your taxes instead of taking the standard deduction.
  • Check the schedule. IRS rules state that if you want to claim a deduction, you should make the payment in the same period you’re reporting on your tax deduction.
  • Trust the experts. Preparing your taxes and meeting deadlines can be frustrating. If you’re not confident about your tax return, or if you want to double-check your figures — better leave it to the experts. At TFX, you’ll find experienced CPAs with over two decades of tax experience.

Veronica Rhodes from TFX

TFX is a women-owned tax firm that offers all U.S. tax services — for both American citizens and non-citizens with U.S. tax filing requirements. From straightforward expat tax preparation to complex cases involving multiple factors — we’ve handled it all for over 25 years.