When it comes to managing your personal finances, every penny counts. That’s why taking advantage of tax deductions can be a smart move. One deduction that homeowners should not overlook is the property tax deduction.
Property taxes are levied by local governments and are based on the assessed value of your property. The good news is that you can deduct these taxes from your federal income taxes, which can help lower your overall tax liability.
To qualify for the property tax deduction, you must itemize your deductions on Schedule A of Form 1040. This means giving up the standard deduction, but if your total itemized deductions exceed the standard deduction amount, it may be worth it.
The first step in claiming this deduction is to gather all relevant documentation. You will need to have copies of your property tax bills or receipts showing payment made during the tax year. Make sure these documents clearly state the amount paid and any additional charges or assessments included.
Next, determine whether you pay property taxes directly or through an escrow account with your mortgage lender. If you pay them directly, keep track of when payments were made throughout the year. If they are handled through an escrow account, check with your mortgage lender to obtain a statement showing how much was paid on your behalf.
It’s important to note that only actual payments made during the year are deductible. If you receive a bill in December but don’t make payment until January of the following year, you’ll need to wait until next year’s tax return to claim that particular payment as a deduction.
Once you have gathered all necessary information and completed Schedule A accordingly, simply transfer the total amount paid in property taxes onto line 6c of Form 1040 (or line 10 if using Form 1040-SR). Remember to keep all supporting documentation in case of an audit.
In addition to deducting real estate property taxes on primary residences and vacation homes, some states also allow for deductions on personal property taxes, such as those on vehicles. Be sure to check your state’s tax laws to maximize your deductions.
Taking advantage of the property tax deduction can help reduce your overall tax burden and put more money back in your pocket. Don’t miss out on this opportunity to save – make sure you claim all eligible deductions when filing your taxes.