Property Tax Deduction: Rules & How to Save - NerdWallet (2024)

FAQs

How do I maximize my real estate tax deductions? ›

This effectively reduces the amount of income the federal government can tax and reduces the amount of tax they must pay. As of 2024, the maximum amount of property taxes you may deduct is capped at $10,000.

You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year.

You can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you are married filing separately, the limit drops to $375,000.

Unfortunately, homeowners insurance premiums aren't tax deductible, unless the property creates a source of income.

As a newly minted homeowner, you may be wondering if there's a tax deduction for buying a house. Unfortunately, most of the expenses you paid when buying your home are not deductible in the year of purchase. The only tax deductions on a home purchase you may qualify for is the prepaid mortgage interest (points).

Out of all the uses for property taxes, the one that homeowners are most aware of has to do with funding public schools. For at least 100 years, state and local municipalities across the country have used revenue from property taxes to help build and maintain schools and pay teacher salaries.

Share: Car insurance is tax deductible as part of a list of expenses for certain individuals. Generally, people who are self-employed can deduct car insurance, but there are a few other specific individuals for whom car insurance is tax deductible, such as for armed forces reservists or qualified performing artists.

Health insurance premiums are deductible if you itemize your tax return. Whether you can deduct health insurance premiums from your tax return also depends on when and how you pay your premiums: If you pay for health insurance before taxes are taken out of your check, you can't deduct your health insurance premiums.

Is last year's tax payment deductible? ›

Prior year Federal tax refunds (and payments) are not taxable (or deductible) on the current year's Federal income tax return.

Your 1098 may show that no taxes were disbursed for one of the following reasons: the taxes were paid at closing, the taxes were not paid from the escrow account in the year the 1098 is reporting on, or the loan was paid off before the taxes were due.

You can't deduct home mortgage interest unless the following conditions are met. You file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form 1040). The mortgage is a secured debt on a qualified home in which you have an ownership interest. Secured Debt and Qualified Home are explained later.

Before the TCJA, the mortgage interest deduction limit was on loans up to $1 million. Now, the loan limit is $750,000. For the 2024 tax year, married couples filing jointly, single filers and heads of households can deduct up to $750,000. Married taxpayers filing separately can deduct up to $375,000 each.

If your state and local taxes—including real estate, property, income, and sales taxes—plus your mortgage interest exceed the standard deduction, you might want to itemize. If you paid more than 7.5% of your adjusted gross income for out-of-pocket medical expenses, you might be able to deduct the amount above 7.5%.

Generally, you probably can't deduct your clothing as a business expense as a real estate agent, but there are exceptions. To deduct clothing, it must be required to do your job and not suitable to wear outside your business.

Rental Losses Are Passive Losses

This greatly limits your ability to deduct them because passive losses can only be used to offset passive income. They can't be deducted from income you earn from a job or investments such as stock or savings accounts.

If your rental expenses exceed rental income your loss may be limited. The amount of loss you can deduct may be limited by the passive activity loss rules and the at-risk rules. See Form 8582, Passive Activity Loss Limitations, and Form 6198, At-Risk Limitations, to determine if your loss is limited.

Real estate depreciation is a method used to deduct market value loss and the costs of buying and improving a property over its useful life from your taxes. The IRS allows you to deduct a specific amount (typically 3.636%) from your taxable income every full year you own and rent a property.