Property Tax Deduction

Publication Date :

04 Jun, 2025

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Table of Contents

What Is Property Tax Deduction?

A property tax deduction is one of the most rewarding tax benefits American homeowners have enjoyed for many years. Under the provision, homeowners have the facility to get their real estate or local property taxes deducted from the total amount of taxes paid under federal income taxes.

However, after the passage of the 2017 Tax Cuts and Jobs Act, this deduction was capped at ten thousand dollars. Under the new law, a married, single, or family head can only get a $10000 deduction when filing separately or jointly for federal taxes. If one files separately after marriage, only $5000 could be claimed as a tax exemption.

Key Takeaways

Property tax deduction means getting a rebate on federal income taxes based on property tax paid on the property annually by the property owner.
It saves the payee of property tax a sum of $10,000 while filing jointly and $5,000 while filing singly on their federal income tax as per the 2017 Tax Cuts and Jobs Act.
To calculate the tax deduction due to property, one has to find the total tax payable on property prevalent in their state and then use it in section A of form 1040 to claim the rebate on tax.
One must note that any newly bought property does not fall under the tax deduction parameter to claim any rebate in federal income tax.

Property Tax Deduction Explained

Property tax deductions are defined as a special deduction allowing homeowners to claim a tax rebate of up to $10,000 from their federal income tax by filing them under Schedule A of Form 1040. The below-listed items fall under the tax deductions from income tax:

Boats
Vacation home
Land
Primary home
Vehicles

The below-listed items do not fall under the tax deductions from income tax:

Tax obligations are those that one pays on a home that one does not own.
Tax obligations that one still needs to pay.
One pays tax obligations while transferring the title to another person while selling their home.
Tax obligations that one pays on business or leasing residential buildings.
The amount of money spent on house improvements.
The cost incurred on the localized renovation of a property.
The bill was paid for electrical power usage, water usage, and trash collection.

An individual can claim this deduction only after itemizing their taxes. Moreover, if a person has claimed a standard deduction, they cannot claim this tax deduction. Therefore, one must wisely choose to get a tax exemption from federal income tax as per the higher limit available for any of these. In addition, personal property tax deductions could be claimed on personal property values like vehicles and boats.

A rental property tax deduction can be claimed by homeowners for certain expenses like repairs, operating expenses, mortgage interest, property tax, and depreciation, as per the IRS. Likewise, one can also claim a deduction if someone has an investment in a property through a loan investment property deduction. As per the property tax deduction, 2021 for individual filing is $5,000 and jointly $10,000.

How To Calculate?

It can be calculated by any property owner using the following steps:

First, one has to assess the value of their property.
Secondly, compute the total tax applicable on the property as per state and local government.
Next, one has to multiply the value of their home from the eligible tax slab.
The final amount would give a rough estimate of annual property tax filing.
After this, the house owner has to itemize their tax deductions. It applies only when their itemized expenditures exceed the standard tax deduction amount annually.
After that, the property owner can claim up to $10,000 from the federal income tax filing jointly and $5,000 singly by filling out Schedule A of Form 1040.
Nevertheless, some states have different assessment methods where the property tax gets calculated for every $1,000 assessed value.

Furthermore, a newly bought home with the state tax charged on it does not fall under the property tax exemption category. Moreover, different states have different tax slabs, and the formula for calculating them also varies.

Limit

In 2017, the Tax Cuts and Jobs Act (TCJA) passed by the American Congress, and the American tax collecting agency, the Internal Revenue Service (IRS), put a maximum limit on deductions has been made. As a result, the combined limit for deduction of sales, state and local income, and property taxes, as determined, has been ten thousand dollars when filed jointly and five thousand dollars when filed singly.

Examples

Let us look at some examples to gain clarity on the subject.

Example #1

Let us assume Noah has a property worth $750,000. Noah has to pay $8,000 as state tax and $4,000 as property tax. Hence, a total tax of $12,000 is the total tax. However, as per TCJA, 2017, Noah can only claim relief of $10,000 as a tax deduction in federal income tax. Moreover, $2000 gets unclaimed as per the law.

Example #2

Suppose a married couple – Noah & Alex bought a property jointly after marriage. Hence, both want to claim an exemption on their federal income tax. Hence, they decide to file property tax singly to claim a deduction under TCJA. The total state tax and the property tax for their property come out to be a sum of $15,000. Therefore, both could claim only $5,000 as a deduction from their federal income tax as per TCJA.