Key takeaways:
- Property taxes are generally deductible, but your deduction depends on the property type—personal, rental, or business.
- There’s a $10,000 cap on state and local taxes, including property taxes, but rental and business property taxes are generally fully deductible.
- Your property tax bill might include some non-deductible fees for local improvements and service fees.
What are property taxes?
Local governments impose property taxes on real estate owners based on the property's assessed value. These taxes apply to homes and commercial buildings and are often a source of funding for community services like schools, road maintenance, and emergency services.
If you own property—your residence, rental or investment property, or business space—you’re likely responsible for paying property taxes.
Next, we’ll dig into how to claim tax deductions for each category of property taxes.
Are property taxes deductible on federal income tax?
Property taxes are deductible, but where you deduct them (and how much you can deduct) depends on the type of property you own.
Personal real estate taxes
You can deduct the real estate taxes paid on your primary residence and any vacation homes you own.
These taxes are deductible on your federal income tax return under itemized deductions on Schedule A. This means you can’t deduct property taxes if you claim the standard deduction.
How much of your property taxes are deductible?
While you can deduct property taxes if you itemize, there’s a catch: since 2018, the IRS limits the deductions for state and local taxes (SALT) to $10,000 ($5,000 if married filing separately).
The umbrella category of state and local taxes includes:
- Real property taxes
- State income taxes OR sales taxes (if you live in a state that doesn’t levy an income tax)
- Personal property taxes (like those paid when you register a vehicle)
For example, if you paid $3,000 in property taxes on your home, $10,000 in state income taxes, and $100 in personal property taxes when registering your car, your total SALT burden is $13,100. But you can only deduct $10,000 on Schedule A. The remaining $3,100 isn’t deductible, and you can’t carry it forward to deduct in a future year—it just goes away.
But this could change shortly. Many provisions of the Tax Cuts and Jobs Act of 2017, including the cap on SALT deductions, are scheduled to expire at the end of 2025. Plus, Congress has made several attempts to restore the full deduction. While they’ve been unsuccessful, we could see an unlimited SALT deduction return for the 2026 tax year. Or lawmakers could make the cap permanent. Or maybe they’ll lift the cap before 2026.
There’s no telling what the future holds, so keep an eye on upcoming tax law changes or work with a tax advisor who does.
Rental property taxes
You can deduct property taxes paid on a rental property on Schedule E. Deducting property taxes paid on a rental reduces your taxable rental income.
Unlike real estate taxes paid on your personal property, rental properties don’t have a limit on deductions for property taxes.
Business property taxes
You can deduct property taxes as a business expense if you own property specifically for your business, like office space, a warehouse, or retail space.
Report these taxes on your business tax return:
- Schedule C for sole proprietorships and single-member limited liability companies (LLCs)
- Form 1120 for C corporations
- Form 1120S for S corporations
- Form 1065 for partnerships and multi-member LLCs
There’s no cap on deductions for business property taxes, so you can use 100% of the business real estate taxes you pay to offset your business income, reducing your income tax liability and potentially your self-employment tax burden.
Non-deductible property expenses
When calculating your property tax deduction, remember every charge on your property tax bill might not qualify for a tax deduction.
Your state or local government might include other fees or assessments in your tax bill.
Some non-deductible expenses you might find on your tax bill include:
- Special assessments for community improvements like sidewalks, sewer line upgrades, or street lighting
- Fees for services like trash collection, water and sewer
- Interest or penalties if you pay your property taxes late
You can deduct these expenses for rental properties or business real estate, but not for your personal residence.
Can renters deduct property taxes?
You may be able to deduct property taxes as a tenant if it’s part of your lease agreement. For example, say your lease agreement requires you to pay $1,000 in rent to your landlord and pay assessed property taxes directly to the county treasurer. In that case, you can deduct property taxes.
However, it’s not so easy if your landlord factors real estate taxes into your monthly rent. For example, if your rent is $1,200 per month and your landlord pays property taxes out of that amount, you can’t claim a real estate tax deduction.
But depending on where you live, you might be in luck. Some states give renters a tax credit or deduction. But the rules vary by state and usually depend on your income level and filing status.
For example, California’s nonrefundable renter’s credit offers a credit of up to $120 ($60 if single or married filing separately) off state income taxes for people who paid rent for at least half the year and have income below a certain threshold.
Several other states offer similar credits or tax deductions, so check with your state’s Department of Revenue or work with a tax professional familiar with your state’s laws.
How Bench can help identify property tax deductions
For small business owners, staying on top of tax deductions makes a big difference at tax time. Our experienced bookkeepers and tax professionals help you track all of your expenses and maximize deductions—including property taxes for your home, business, or rental properties.
Ready to let Bench handle the details so you can focus on running your business? Get started today.
