Saving on taxes is a basic need for any person who wants to increase their capital in the United States. The deduction of real estate taxes from the taxable base allows you to save a lot. Especially when the size of such a tax can be a real financial burden. A few thousand dollars a year is a lot. In this article, we will determine when and how the deductions work. Are property taxes deductible? And is it a good way to save money?
What are property taxes?
If you’re a homeowner or real estate investor, you’re probably familiar with this terminology (because we all want to save money). The amount you pay in property taxes is determined by the assessed value of your land and any structures on it. The estimated value is multiplied by the local tax rate to resolve your tax bill.
You pay your local government tax every year, whether the tax amount is included in your monthly mortgage payments or you pay your bills on your city’s website.
In any case, you continue to pay taxes while you own the property, even if you pay off your mortgage or stop using the house as your primary residence. With this money, the city builds communications, supports the work of structures, and builds roads.
Are property taxes deductible?
You can deduct real estate tax from your tax return. But there are limitations, and you must provide all the necessary data for this to make this deduction. The Tax Cuts and Jobs Act limits the amount of property taxes you can deduct.
The standard deduction for tax year 2022 (filed in 2023) is between $12,950 and $25,900, depending on filing status.
Sometimes, it’s hard to predict whether you’ll benefit more from an income or a sales tax deduction, so work out the numbers with your accountant if you need more clarification.
Also, a sales tax deduction makes the most sense if you live in a state with no income tax. Of course, if you pay income tax in your state, this deduction will save you more money than the sales tax deduction.
What can be subtracted?
- Real estate taxes paid by you on property that is not intended for business purposes. Including the main houses, holiday homes, cooperative apartments, and land.
- Non-property property taxes are based on the value of an item (usually a car, motor home, etc.).
- Federal and local income taxes withheld from your wages during the tax year.
- You paid the federal and local income taxes in the current tax year for the previous year. Does not include penalties and interest.
- This refers to tax payments made in the current year and any refund credited to the current year’s income tax account.
- You pay federal and local sales taxes on food, clothing, medical supplies, automobiles, and more.
What can’t you subtract?
Of course, there are many things that you cannot subtract with SALT deductions, such as:
- Taxes on rent or commercial property.
- Foreign property taxes.
- Federal Income Tax (remember that the SALT deduction is made on federal and local taxes).
- Taxes associated with the sale of a house.
- Payments to your Home Owners Association.
- You have paid Real estate taxes for someone else or the property you do not own.
- Fees appear on your property tax bill for non-tax items such as garbage collection, local work charges (such as building a sidewalk in front of your home), and fees to pay off your fine.
- Social Security, Medicare, Federal Unemployment Taxes (FUTA), and Railroad Retirement Taxes (RRTA).
- Customs duties.
- Federal inheritance and gift taxes.
- Certain federal and local taxes include gasoline, vehicle inspection, vehicle repair and improvement, and license fees.
- Taxes you still need to pay.
What else helps deduct property taxes?
You have two main options to consider.
- Standard deduction — when you deduct taxes based on the “standard” procedure.
- Itemizing deduction — when you collect all checks with house expenses and pay everything from a separate card.
Find your tax records
Your local tax authority can provide you with a tax return for your home. But you should also carefully study the registration documents for your car, house, or other movable property. You may also pay property tax on them, and a portion based on the value of the vehicle will likely be deducted.
Eliminate what is not included in the bill
You can deduct property tax only if it is charged at the same rate for similar properties in your area.
Subtract property taxes in the year you pay them
It sounds simple, but for most, this can cause additional difficulties. Typically, people pay property taxes in two ways: they write a check once or twice a year when the bill comes in or put the money away every month in an escrow account when paying off a mortgage. Don’t let the second trick fool you – deduct only the taxes paid during the year. When paying off a mortgage, property tax is deducted when the mortgage company pays your county.
- Taxes paid on rental or commercial property, and property not owned by the taxpayer, cannot be deducted.
- In addition, a homebuyer who pays the seller past due taxes for the prior year when the sale closes cannot deduct those tax payments from their tax return. Instead, this late tax payment is treated as part of the home’s purchase price.
- The property owner’s tax invoice includes various items that cannot be deducted for tax purposes. Some of these items include payments for improvements in your area and fees for providing services such as garbage collection — this is your usual expense, roughly like a gallon of milk in a store. To understand how much of the tax bill is deductible, refer to Form 1098, which the bank or lender submits to the tax office and sends to the property owner.
How to save. Are property taxes deductible? Conclusion
There are countless nuances to paying property taxes. To qualify for a property tax deduction, the tax must pertain only to the value of your personal property and be assessed annually, regardless of when the government collects it. Therefore, if the federal tax was levied only at the time of the purchase of the property, it does not meet the tax definition as a deductible personal property tax. It makes sense for taxpayers to itemize deductions if the sum of their eligible expenses exceeds the standard deduction allowed for that tax year.
Also, remember that working with a team of experts and mortgage advisors always makes sense. This will make your life much easier and save you money. If you have questions about the settlement of mortgage issues — you always have the option to contact LBC Mortgage!