How to Claim Property Taxes on Your Tax Returns

Even though the IRS doesn’t ask for your race when filing your taxes, there are still quite a few racial disparities in the income tax system. But that’s no surprise, is it? 

Quite a few tax policies actually enhance the racial wealth gap in the United States, which is why Wealth Stack wants to make sure you understand the basics of filing your taxes and the ins and outs of deductions and credits.

Today we’re gonna talk about how to claim property taxes on your tax returns so that you can earn more cash come Tax Day. But before we dig into that, let’s talk about the housing wealth gap in the US. Why? It’s important that you understand what’s going on so that you can not only work to beat the system but also just to improve your own personal financial situation.

Not worried about taxes right now but still want to grow your wealth? Download Wealth Stack for free to get started learning how to invest as a beginner.

What to Know About the Housing Wealth Gap

Homeowners are eligible to take advantage of tax incentives to help lower their overall bill. This means that you can add things like mortgage interest and state and local property taxes as itemized deductions under Schedule A, lines 5b and 8. If you’re not a numbers or terms kinda person, then focus on this: when you own a home, you can deduct some of the property taxes off your overall bill!

However, despite offering these tax incentives to homeowners, there’s no evidence to show that it’s actually increased homeownership rates. In fact, they’re mostly encouraging wealthier families to take advantage of the incentives. As we know, homeownership rates for White households are significantly higher than for people of color, and the gap continues to widen.

If you’re a BIPOC and own a home, you’ll want to look into these deductions. While homeownership among BIPOC individuals is traditionally lower than it is for Whites, it doesn’t mean you can’t reap the financial benefits that homeownership provides you with.

Can You Deduct Property Taxes?

Yep, you can! 

The only catch is that the property has to be for personal use, and you’re required to itemize it on your 1040 (on the lines mentioned above, 5b and 8).

While the lines, terms, and how you fill out the form are less important (a tax professional can help you with that, or try FreeTaxUSA or the IRS Free File tool for a free filing option), the point is that if you’re paying your property taxes, you can deduct them from your federal income tax bill. This ultimately means you’ll owe less money or get more money back from Uncle Sam.

No matter which kind of property tax you pay, you can claim it by itemizing it as a personal tax deduction on Form 1040 (check that form out here).

Is there a limit? Unfortunately, yeah. You can only deduct up to $10,000 total in the form of property taxes and state or local income taxes or sales taxes. So, you can’t deduct $7,000 in property taxes and $4,000 in sales taxes, for example, as that would put you over the limit.

What to Know About Personal Property Tax

To learn how to claim property taxes on your tax returns, you’ll want to become familiar with the term “personal property tax.” It’s just a fancy way of saying property taxes, really (see how they try to make this confusing to you so that you don’t even bother?). 

Personal property tax rates vary from state to state and city to city. For example, in Austin, Texas, the personal property tax is 1.82%; in Los Angeles, it’s actually much lower, sitting at just over .072%.

It’s best to check with the county that you live in to see what your tax rate is. Also, each county sets its own rules regarding how they tax properties that produce income. For instance, if you’re looking at Florida's Miami-Dade County, taxpayers are required to consider the market value price for every property to calculate the taxable amount. 

So, it’s best to just contact your county to ask.

Non-Deductible Charges to Keep in Mind

Okay, so what can you claim as a deduction when it comes to property taxes?

Your bill for real estate property taxes likely contains several items that are just miscellaneous charges, even though they look like real taxes. These non-deductible charges include:

  • Fees for water or the trash collection
  • Community charges via projects such as the construction of a sidewalk in front of your house or the building of a park inside of your housing community
  • Certain maintenance costs

When claiming property taxes on your tax returns, be sure not to include these as they won’t be valid. The last thing you want is the IRS sending back your files because something’s inaccurate! All that does is delay your refund.

Paying Property Taxes Using Escrow Accounts

You can deposit money into an escrow account and pay your property tax as a share of the mortgage payment per month. This gets a little complicated, so if you’re going to go this route, it might be worth getting in touch with a financial advisor. 

Basically, the lender or the bank (whoever’s in charge of the escrow account) will report a specific amount to the IRS on Form 1097, which is always eligible for deduction. 

Need Help with Taxes?

Taxes are tough, man. We get it. At Wealth Stack, the last thing we want is for you to miss out on tax deductions next year and other tricks that can ultimately help you save money and compound your wealth.

So, if you’re still not sure how to make sense of taxes, head over to our Learn section. We’ve stocked up on videos that’ll help make learning about taxes way easier than reading through this blog probably was. 

Or, go straight ahead and download the Wealth Stack app. Once you do, you’ll gain access to tons of free financial videos that can help you learn more about building wealth for your future.