Real Estate Taxes, also known as "Property Taxes", are
Deductible Tax Breaks for the Homeowner

Real Estate Tax Deductions lower your tax liability.  You can
decrease your tax liability further by BOOSTING your Real
Estate Deduction for the current year!



Real Estate Tax Definition
This IRS defines "Real Estate Tax" as the annual tax on
the value of real property by most state and local governments.

Most state and local governments charge an annual tax on the
value of real property.  This is called a real estate tax.  You may
deduct the tax if it is based on the assessed value of the real
property and the taxing authority charges a uniform rate on all
property in its jurisdiction. 

The tax must be for the welfare of the general public and not be a
payment for a special privilege granted or services rendered to
you.


Deductible Real Estate Taxes
As a homeowner, you are entitled to deduct payments of
real estate tax on your property if you claimed itemized
deductions on your tax return (you are not allowed to deduct
real estate taxes if you claim the standard deduction on your tax
return).  The IRS allows you to deduct real estate taxes on
your main home and any other home you own.  There are no
limits on the dollar amount of real estate taxes you can deduct.
There are also no limits on the number of houses for which
you can claim the deduction.

Your payments of state, local, or foreign real estate taxes on
your non-business property are deductible.  You must have
paid them at settlement or closing, or to a tax authority during the
year.


Real Estate Taxes included in Mortgage Payment
Your monthly mortgage payment to a bank or other mortgage
holder generally includes amounts allocated to real estate taxes.
The bank will pay the real estate taxes to the proper taxing
authority on their due date.  If your real estate taxes are included
in your mortgage payment you may claim a deduction only in the
tax year you actually pay taxes.  You can check the year end
statement the lender sends you to determine if they pay the tax
collector the same year that you paid taxes to the lender. 


Real Estate Taxes Paid at Settlement or Closing
Real estate taxes are generally divided so that you and the seller each
pay taxes for the part of the property tax year you owned the home. Your
share of these taxes is fully deductible, if you itemize your deductions.
 


Division of Real Estate Taxes
 For federal income tax purposes, the seller is treated as paying the property
taxes up to, but not including, the date of sale. You (the buyer) are treated as
paying the taxes beginning with the date of sale. This applies regardless of
the lien dates under local law. Generally, this information is included on the
settlement statement you get at closing.

You and the seller each are considered to have paid your own share of the
taxes, even if one or the other paid the entire amount. You each can deduct
 your own share, if you itemize deductions, for the year the property is sold.

Example:
Reuben Villa purchases a home on September 1.  The property tax year (the
period to which the tax relates) in your area is the calendar year.  The tax for
the year was $1000 and was due by the seller on August 15. 

Reuben owned the home during the year for 122 days (September 1 to
December 31, including his date of purchase).  Reuben will determine his
deduction for real estate taxes on his home as follows:

 
  1. Total Real Estate Taxes for the year
  2. Number of days Reuben owned the property
  3. divide line 2 by 365
  4. Reuben's deduction.  Multiply line 1 by line 3.
 $1000
122
.3342465
$334.25
 

Reuben may deduct $334.25 on his tax return for the year if he itemizes his
deductions.  He is considered to have paid this amount and can deduct it on
his return even if, under the contract, he did not have to reimburse the seller.


Boosting your Real Estate Tax Deduction
Can you boost your real estate tax deduction for the current
year?  The answer is YES!  Learn about boosting your
property tax deduction here


Prorated Real Estate Taxes
When you purchase your property, you will more than likely have
to pay prorated real estate taxes.  They are prorated because
the IRS treats the seller as paying the real estate taxes up to the
date of the sale and treats you as paying the taxes beginning
with the date of sale.  Learn about prorated taxes here.


Delinquent Property Taxes
Delinquent taxes are unpaid taxes that were imposed on the seller
for an earlier tax year.  If you agree to pay delinquent taxes when
you buy your home, you cannot deduct them.  You treat them as part
of the cost of your home. 


Escrow Accounts
Many monthly house payments include an amount place in escrow
(put in the care of a third party) for real estate taxes.  You may not be
able to deduct the total you pay into the escrow account.  You can
deduct only the real estate taxes that the lender actually paid from
escrow to the taxing authority.  Your real estate tax bill will show this
amount.
For more information concerning Real Estate Taxes, please refer
to IRS Publication 530.


Click here to leave real estate tax and return to general tax
breaks main