Can You Deduct Property Taxes on Your Federal Taxes?

Deducting property taxes is a benefit for homeowners, but it is governed by specific Internal Revenue Service (IRS) regulations. The ability to claim this deduction depends on a taxpayer’s financial situation and requires navigating a few rules. For a property tax payment to be deductible on a federal tax return, it must meet certain criteria and is subject to limitations that can affect the final amount a taxpayer can claim.

The Itemization Requirement

A taxpayer’s ability to deduct property taxes hinges on the choice to itemize deductions rather than taking the standard deduction. The standard deduction is a fixed dollar amount that varies by filing status. For the 2025 tax year, the standard deduction is $15,000 for single filers and those married filing separately, $30,000 for married couples filing jointly, and $22,500 for heads of household.

Itemizing involves summing up all eligible expenses, such as mortgage interest, charitable contributions, and state and local taxes. A taxpayer should only choose to itemize if their total itemized deductions exceed their standard deduction amount. For example, if a married couple filing jointly calculates their total itemized deductions to be $32,000, they would benefit from itemizing because this amount is greater than their $30,000 standard deduction.

The State and Local Tax Deduction Limit

Even for taxpayers who itemize, the deduction for state and local taxes, often referred to as the SALT deduction, is capped. The Tax Cuts and Jobs Act of 2017 established a limit of $10,000 per household per year for all state and local taxes combined. For those who are married but file separately, this limit is reduced to $5,000 per person. This cap is temporary and is scheduled to expire after the 2025 tax year.

This $10,000 cap encompasses a combination of taxes. Taxpayers must include their property taxes along with either their state and local income taxes or their state and local sales taxes, whichever is greater. A taxpayer cannot deduct both income and sales taxes in the same year; they must choose one to combine with their property taxes.

For instance, if a taxpayer paid $12,000 in property taxes and $8,000 in state income taxes, their total state and local taxes are $20,000. Despite this, their deduction on their federal return is restricted to the $10,000 maximum.

Defining Deductible Property Taxes

To be deductible, a property tax must be an ad valorem tax, meaning it is based on the assessed value of the real property. This applies to taxes paid on a primary residence as well as a second home or vacation property. The funds generated from these taxes must be for the general public welfare, such as supporting schools, police departments, or road maintenance.

Certain charges that appear on a property tax bill are not deductible because they are assessments for local benefits. These are fees for specific improvements that tend to increase the value of the property, such as the construction of new streets or sewer lines. An exception exists for assessments related to the maintenance or repair of these public systems, which may be deductible.

For homeowners who pay their property taxes through an escrow account managed by their mortgage lender, the deductible amount is what the lender actually paid to the taxing authority on their behalf. This figure is reported to the homeowner on Form 1098, Mortgage Interest Statement, which is sent by the lender in January.

When a property is bought or sold during the year, the property tax deduction must be allocated between the buyer and the seller. The taxes are prorated based on the number of days each person owned the property. This division is typically detailed on the settlement statement provided at closing.

How to Claim the Deduction

The deduction is claimed on Schedule A (Form 1040), Itemized Deductions, which is filed along with the standard Form 1040 tax return. On Schedule A, taxpayers report their state and local taxes on the designated line for these expenses. The $10,000 limitation ($5,000 for married filing separately) is applied on this form, and the final figure is combined with other itemized deductions to calculate the taxpayer’s total itemized amount.